Country Forecast Taiwan October 2017 Updater

Country Forecast Taiwan October 2017 Updater

  • October 2017 •
  • Report ID: 4981220 •
  • Format: PDF


  • The Democratic Progressive Party (DPP) is likely to retain both the presidency and a majority in the Legislative Yuan (parliament) in the next general elections in 2020. There will be an improvement in relations between the Executive Yuan (the cabinet) and the legislature in 2018-22, but ties with China will remain strained under the DPP.
  • The government's resistance to China's preferred basis for bilateral relations will result in the mainland proactively reducing Taiwan's international space. This will lead the DPP to prioritise preserving ties with the US and the security guarantee that it provides. Links with Japan will strengthen modestly.
  • The DPP will have mixed success navigating now-entrenched popular dissatisfaction with established party politics and a renewed culture of public protest. This will be in large part owing to its prioritising of medium-term policy goals, the successes of which will be incremental and difficult to promote publicly. Public dissatisfaction with the party will grow, but the lack of an effective opposition means that it is unlikely to lose power in 2018-22.
  • Tax and pension reforms in 2018-22 will aim to facilitate redistributive policies, but the mixed impact of these will help to widen the fiscal deficit on average in the forecast period compared with 2013-17. In 2018-20 the fiscal balance will deteriorate, with a shortfall equivalent to 1.1% of GDP on average, as the DPP government enacts more expansionary policies, mainly in the form of public housing and infrastructure construction.
  • Real GDP growth will be constrained by uneven external demand for Taiwan's main exports in the forecast period. The pace of export growth will dip in 2018-20 owing to slowing economic growth in China and a downturn in the US. These trends will also dampen private investment for much of the forecast period, although public spending will offer some counterbalance to this.
  • Consumer price inflation will fail to pick up much until 2021, amid struggling domestic demand and stagnating global commodity prices. In 2021-22 stronger domestic economic conditions will result in faster price growth, but consumer price inflation will average just 1.2% a year in 2018-22.
  • In addition to uneven external demand, growth in foreign earnings will be tempered by increasing competition in high-technology exports among Taiwan's regional neighbours in the forecast period. Competitors' strengthening capacities and integration, partly owing to already-established free-trade agreements, will mean that Taiwan struggles to maintain a lead in many cutting-edge industries.


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