Taiwan Buisness Forecast Report Q3 2008

Publication Date	July 2008
Publisher	Business Monitor
Product Type	Report
Pages	60
ISBN Number	not applicable
Product Code	BMI02094

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Summary

Time For Ma To Deliver The first month of Ma Ying-jeou's presidency augurs well for cross-Strait relations and business conditions in Taiwan. We are expecting further progress on a number of issues centred on increased economic integration between Taiwan and mainland China. Momentum is, however, likely to falter once the negotiations focus on issues touching on Taiwan's sovereignty. Robust growth on the mainland and in other emerging markets has bolstered the Taiwanese export sector amid sluggishness in G3 economies and domestic demand, and this has raised upside risks to our 4.1% GDP growth forecast for 2008. Going into 2009, we expect higher inflation and monetary tightening to dampen momentum in emerging markets and reduce demand for Taiwanese exports, with our GDP forecast standing at 4.5%.

Ma Ying-jeou has kick-started his presidency by achieving a landmark deal on direct cross-Strait weekend flights, which are to be resumed from July 4. We are expecting to see progress on a number of issues during H208, with the main focus being on facilitating cross-Strait transport and business. The goodwill built up in the negotiations is, however, likely to run dry as the parties move onto issues relating to Taiwan's participation in international organisations and possibly a peace treaty. Moreover, Ma's intention to boost Taiwan's armed forces in order to maintain military suf- ficiency could be a possible stumbling stone, although we remain positive about progress over the medium-to-long term.

GDP growth surprised on the upside in Q108, coming in at 6.1% year-on-year (y-o-y) after a revised 6.5% in Q407. The strong momentum of the export sector has continued into Q208, but we are still expecting a slowdown as weakness in G3 economies spreads to emerging markets. Lower external demand will raise the importance of domestic demand, where the continued sluggishness of private consumption will only be partly offset by fiscal stimulus and an uptick in corporate investment.

Nevertheless, we now see upside risks to our forecast of 4.1% GDP growth in 2008, while the risks to the anticipated 4.5% GDP expansion in 2009 are more balanced as higher inflation and monetary tightening dampen demand from both developed and developing markets.

The resumption of regular direct flights between Taiwan and the mainland, expected in 2009, will constitute a massive improvement for businesses on the island, which are now highly dependent on operations on the mainland. The flights will also provide a significant boost for Taiwan's tourism sector as the daily quota on tourists from the mainland is raised, with concomitant business opportunities in the construction and retail sectors. We believe Ma Ying-jeou's initial focus on cross-Strait relations will make way for a drive to improve business conditions in Taiwan by cutting taxes and regulation.

Content

Executive Summary
Time For Ma To Deliver
Chapter 1: Political Outlook
- Swot Analysis
- Bmi Political Risk Ratings
- Foreign Policy
- Cross-Strait Relations: Ma To Focus On Economic Issues
- We See Cross-Strait Relations Entering A More Difficult Phase Following The Initial Months Of Ma Ying-Jeou's Presidency.
- Us Relations: Arms Package Poses Dilemma
- The Next Us President Will Have To Reassess Washington's Relations With Taiwan As The Pending Congressional
- Approval Of A Us$11bn Arms Package Threatens To Derail The Recent Progress In Cross-Strait Relations.
Chapter 2: Economic Outlook
- Swot Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- Economy Resilient, But Slowdown Still Expected
- We See Growing Upside Risks To Our 4.1% Gdp Growth Forecast For 2008 As The Export Sector Has Yet To Show
- Signs Of Decelerating, Despite The Weakness In G3 Markets.
- Table: Economic Activity
- Fiscal Policy
- Doubts Over Fiscal Stimulus
- We Are Sceptical Of The Wisdom Of The Fiscal Stimulus Presented By The New Kuomintang-Led Government,
- Believing That Taiwan Would Be Better Served By Tax Breaks Addressing The Disparities In The Income And Corporate
- Tax System.
- Table: Fiscal Policy
- Balance Of Payments
- Exports Show Resilience, But Downside Risks Perceptible
- Although Export Growth Has Bounced Back Toward The End Of H108 On The Back Of Robust Shipments To The
- Mainland And South East Asia, We Think The Indirect Effects Of Weaker G3 Demand Will Gain Broader Traction In
- The Numbers As We Enter H208.
- Table: Balance Of Payments
- Monetary Policy
- Utility Price Hikes To Add Inflationary Pressures
- Inflationary Pressures Should Remain High As We Enter The Second Half Of 2008, In View Of Elevated Commodity
- Prices And Fuel And Utility Price Hikes.
- Table: Monetary Policy
- Exchange Rate Policy
- Yuan Convertibility Bill To Bring Major Benefits
- Taiwan's Approval Of A New Bill To Allow Greater Convertibility Between Its Currency And The Chinese Yuan Will
- Greatly Facilitate Cross-Strait Business. It Will Therefore Provide Major Benefits To The Island's Economy.
Chapter 3: Special Report
- Business Outlook For Global Frontier Markets
- Growing Fast On The New Frontier
- The 41 States That Bmi Examines In A New Report On Our Online Service May Make Up Only A Small Slice Of The World
- Economy, But They Possess Characteristics That Will See Them Gain Importance In The Eyes Of Investors And Global
- Businesses Over The Coming Years.
- Frontier Investment
- Potential And Pitfalls
- The Spectacular Macroeconomic Performance Of Frontier Markets In Recent Years Has Been Matched By Mildly
- Successful Efforts To Deepen Capital Markets.
- Table: Frontier Markets - Key Data And Projections For Top 10 Countries
- Table: Gdp Per Capita, Us$
- Table: Diversity Through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market Indices
- Regional Overview
- Laos
- Neighbouring Economies The Key To Growth
- Laos's Gdp Growth Has Been Boosted In Recent Years As Neighbours China, Thailand And Vietnam Compete For Its
- Natural Resources.
- Yemen
- Huge Potential, But Don't Bank On Gcc Membership
- Markets Do Not Come Much More Frontier Than Yemen, And, As Would Be Expected, There Is Huge Potential For
- Development, With The Prospect Of Eventual Gcc Membership Likely To Act A Key Investment Pull.
- Table: Yemen Economic Activity
- Democratic Republic Of The Congo
- Mining Industry To Drive Growth
- The Democratic Republic Of The Congo's Mining Industry Will Be A Key Driver Of Growth And Is Likely To Attract
- Significant Levels Of Fdi, With Our Real Gdp Forecasts Standing At 8.3% And 7.9% In 2008 And 2009, Respectively.
- Table: Democratic Republic Of The Congo - Economic Activity
- Cuba
- Investment Prospects After Fidel
- The Accession Of A New Leadership Structure In Cuba Has Sparked Excitement That The 45-Year-Old Trade Embargo
- With The Us May Be Lifted And Cuba May Move Toward Market Liberalisation.
- Table: Cuba Macroeconomic Data And Forecasts
- Mongolia
- Minerals To Drive Economic Boom
- Mongolia Is In The Midst Of A Massive Resource-Led Economic Boom That Should Lift Gdp Growth Into The Double
- Digits And Underpin Robust Increases In Exports And Inflows Of Foreign Investment Capital Over The Long Term.
- Table: Mongolia - Economic Activity
Chapter 4: Business Environment
- Swot Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook
- Table: Bmi Business And Operational Risk Ratings
- Table: Bmi Legal Framework Ratings
- Institutions
- Infrastructure
- Labour Force
- Table: Asia, Fdi Inflows
- Market Orientation
- Bmi Trade Ratings
- Operational Risk
Chapter 5: Key Sectors
- Food & Drink
- Table: Food Consumption Indicators - Historical Data & Forecasts
- Infrastructure
Table: Construction Data