alive in the bitter sea (part 5) the story...
TRANSCRIPT
Taiwan Business Leaders’ Forum28 April 2016
Alive in the bitter sea (part 5)The story continues …
The story so far…
• According to DGBAS’s latest estimation in February 2016, GDP growth rate in 2016 is forecast to be 1.47%, down 0.85 percentage points on November 2015’ s forecast, mainly due to weakgrowth momentum in exports.
• On a quarterly basis, real GDP is decreasing in Q1 2016, but is expected to gradually improve in the coming quarters
Source: DGBAS
…shows consumers cautious…The growth rate of private consumption (y/y)
• The government has extended the implementation period of some measures of the consumption-boosting program to the end of June 2016, which was originally to be implemented from November 7, 2015 to February 29, 2016. It was expected thatthe stimulatory effect would gradually appear in the first quarter of this year.
• However, the poor economic performance may reduce enterprises’ willing to increase salaries. In addition, the volatility of financial markets also weighs on consumer confidence.
• Overall, private consumption is projected to rise by 1.36% in 2016, lower than 2.28% in 2015.
…and the Taiex fairly steadyTaiwan Stock Exchange Weighted Index
8640
8888
9820
9625
9375
8665
8017
8295
85548463
8338
8156
84868581
7000
7500
8000
8500
9000
9500
10000
TWSE (Bloomberg)
A muted outlook for global growth
Christine Lagarde’s ‘new mediocre’ now the status quo
Global GDP Growth
OECD (02/2016) IMF (04/2016) EIU (03/2016)
2015 2016 2017 2016 2017 2016 2017World 3,0 3,0 (-0,3) 3,3 (-0,3) 3,2 (-0,2) 3,5 (-0,1) 2,3 2,6
USA 2,4 2,0 (-0,5) 2,2 (-0,2) 2,4 (-0,2) 2,5 (-0,1) 2,0 2,3
Europe 1,5 1,4 (-0,4) 1,7 (-0,2) 1,5 (-0,2) 1,6 (-0,1) 1,5 1,8
Japan 0,4 0,8 (-0,2) 0,6 (0,1) 0,5 (-0,5) -0,1 (-0,4) 0,8 0,4
China 6,9 6,5 6,2 6,5 (+0,2) 6,2 (+0,2) 6,5 6,0
What’s behind the growth downgrades
• Transition of China from manufacturing investment-led growth to a consumer and services-oriented economy (smooth transition estimated 5% chance – Asia monitor)
• Drop in commodity prices & Oil – Failure at Doha, uncertainty regarding the future prices
• Gradual tightening in monetary policy in the United States as several other major advanced economy central banks continue to ease monetary policy
• Euro uncertainty : • refugees, terrorism, stagnant wages -> inward looking nationalism
• Brexit fears - referendum June 23rd
• Strong El Niño – Floods in South America + Drought in Africa & South East Asia
• Earthquake in Kyushu, Japan
Continuous downgrades of growth are leading to economic uncertainty & investor caution
Brexit: will the UK cut off the EU in June?
A major cause of uncertainty
• Growth forecast already dropped by 0,3 and is now at 1,9%
• Mark Carney, Bank of England governor, has pointed out that with a record current accountdeficit, the UK currently relies on the “kindness of strangers” to finance itself ininternational markets.
• Obama : “The UK is going to be at the backof the queue” in trade talks with the U.S. ifit withdraws from the EU.
• George Osborne says everybody will be poorer if Britain
leaves…and the Scots would push for another shot at
independence
George Osborne: Brexit would leave UK « permanently poorer »
• According to George Osborne, Britain’s economy would shrink6% by 2030, costing every household theequivalent of £4,300 a year if voters choose to leave the EU.
• In a Times article the chancellor wrote: “The conclusion is clear for Britain’s economy and for families –leaving the EU would be the most extraordinary self-inflicted wound. »
• Treasury report is understood to examine three options for a post Brexit deal, according to the BBC:• A Norwegian-style deal in which the UK has access to the EU’s single market. The UK would still makecontributions to the EU budget but has no say over the rules.• A deal along the lines of the EU-Canada deal.• The so-called “clean break” or World Trade Organisation option, in which the UK trades with the rest ofthe EU and other nations along the rules laid down by the WTO
• The chancellor wrote: “The Treasury analysis shows that under all plausible alternatives to Britishmembership of the EU we would have a less open and interconnected economy – not just with Europe, but,crucially, with the rest of the world. There would be less trade, less investment and less business. Leave theEU and the facts are: Britain would be permanently poorer. Britain’s families would be permanently poorertoo.”
Asia Pacific regional perspective
Asia Pacific outlook: still leading global growth
Source : IMF’s World Economic Outlook, April 2016 : Too Slow for Too Long
The FT: China could still generate global growth, but…
• China : stronger trade data than expected, the latest signal of a tentative revival infortunes that paves the way for Friday’s release of first-quarter economic growth.
• Exports rose 11.5% while imports fell 7.6 per cent for the period. China’s foreignexchange reserves also increased in March in the for the first time in five months,helped in part by large trade surpluses.
• IMF revised upwards its forecast for Chinese economic growth this year, to 6.5% (+0.2).In March, Premier Li Keqiang projected economic growth of 6.5-7 per cent for 2016.
• The IMF said it was concerned the recent improvement in China’s economic outlookwas driven by short-term stimulus measures that could exacerbate the country’s alreadylarge debt pile.
• http://www.ft.com/intl/cms/s/0/ad066f38-008f-11e6-ac98-3c15a1aa2e62.html#axzz45gMDgV16
• China’s total debt rose to a record 237% of GDPin the first quarter.• Speed worrying : The debt in 2007 was 148%
1. Banks driving the huge credit expansion since2008 rely increasingly on volatile short-term fundingthrough sales of high-yielding wealth managementproducts, rather than stable deposits.Risk : Banks find themselves unable to fund all their assets safely → Financial crisis likely
2. PBoC ward off crisis by flooding the bankingsystem with cash even if non-performing loansrise sharply.Risk: Excess debt leading to a Japan scenario,a “lost decade” of slow growth and deflation
http://www.ft.com/cms/s/0/acd3f2fc-084a-11e6-876d-b823056b209b.html#axzz46u53X1jh
… there are problems
• Mainland China's economy is a vital driver of global expansion. But it grew only 6.9 percent lastyear, its weakest rate in a quarter of a century.
• But the PMI from the National Bureau of Statistics (NBS), which tracks activity in factories andworkshops across the vast nation, rebounded to 50.2 for March.
• The PMI figure follows February's 49.0.
http://www.chinapost.com.tw/business/asia-china/2016/04/02/462411/China-manufacturing.htm
Official data offer a positive signal
Taiwan’s economic outlook
1st quarter of 2016: -0.64% (DGBAS projection) / -0.88% (TIER projection)55% chance of recession in 2016 (Bloomberg)
http://www.bloomberg.com/news/articles/2016-01-11/meet-2016-s-worst-economic-performers-flirting-with-disaster
Taiwan’s GDP forecasts – we can but hope…
Internal (1.27 – 2.06w) External (1.42 – 2.6)
DGBAS 1.47% (-0.85) ADB 2.4% (-0.2)
CIER 1.36 (-0.88) IMF 1.5% (-1.1)
TRI 2.06% JP Morgan 1.8%
TIER 1.27% (-0.3) Standard and Poor’s 2.1% (-0.1)
IEAS (Academia Sinica) 1.74% EIU 1.9% (-0.1)
Yuanta Polaris 1.42% (-0.51) Bloomberg 2.0%
Cathay Bank 2.1%FocusEconomics 1.7% (-0.2)
EIU 1.9% (-0.1)
Key indicator forecast 2016
Indicator Internal External
Inflation (0.82% feb 2016) DGBAS 0.73%
JP Morgan 1.2%
Trading Economics 1.1%
FocusEconomics 0.8%
Unemployment (3.89% march 2016) IEAS 3.89%IMF 3.8%
Trading Economics 4.02%
Exchange rate (32.341NT 04/26/16) TIER 33.15
Trading Economics 34.91
Citibank 35.4
ScotiaBank 34.0
FocusEconomics 34.5
NDC : Exports, Imports & New orders
Both New Orders and Production sub-indices registered a promising improvement as they went up 24.3 and 34.4 percentage points to 61.3 and 63.8 respectively. The strong growth in New Orders and Production was mainly caused by more working days compared to the previous month.
60.4
42.1
56.656.2
40.3
55
66.1
37
61.3
30
35
40
45
50
55
60
65
70
mar-15 apr-15 may-15 june-15 july-15 aug-15 sept-15 oct-15 nov-15 dec-15 jan-16 feb-16 mar-16
Exports Imports New Orders
Some good news from the NDC version of March’s PMI/NMI
• Taiwan Manufacturing PMI registered 54.9 percent in March, which is 13.5percentage points higher than the 41.4 percent in February.
• The rising of PMI was driven by an increase in new orders and production.
• The Taiwan NMI registered 50.5 percent in March, which is 7.6 percentage pointshigher than the 42.9 percent reported in February.
• The rising of NMI was driven by an increase in Business Activity and New OrdersIndexes.
NDC: March 2016 Manufacturing PMI was positive
The indices rose industry by industry, except one …
NDC: March 2016 Non Manufacturing Index also positive
NMI rose industry by industry, except one again…
What the NDC says, in full about the PMI…
… and the NMI
Some good news from the world’s largest contract chip-maker
• Taiwan Semiconductor Manufacturing Co. (TSMC, 台積電) ranked as the largest spender on research and development in Taiwan in 2015, according to the Ministry of Economic Affairs(MOEA).
• A solid demand for the 16nm process is expected to prompt TSMC to raise its capital expenditureplan by about 10 percent for this year to boost its production capacity.
• In addition, Apple Inc. is expected to book more of TSMC's 16nm capacity to secure a sufficientsupply before the launch of its next generation iPhones — the iPhone 7 — expected later thisyear.
http://www.chinapost.com.tw/business/company-focus/2016/04/18/463792/TSMC-ranks.htmhttp://www.chinapost.com.tw/taiwan/business/2016/04/06/462706/TSMC-target.htm