Taiwan raises 2017 economic outlook to three-year high, but warns of risks ahead

TAIPEI (Reuters) - Trade-reliant Taiwan raised its 2017 economic growth outlook to a three-year high on Friday as exports improve, driven by strong global demand for smartphones and other hi-tech electronic gadgets.

FILE PHOTO - A man looks at his mobile phone at a shopping district in Taipei, Taiwan May 27, 2016. REUTERS/Tyrone Siu/File Photo

The island’s gross domestic product (GDP) is now expected to expand 2.05 percent this year, up from the last estimate of 1.92 percent, the Directorate General of Budget, Accounting and Statistics said, raising its view for the second time since November.

If achieved, that would be the best showing since the economy expanded 4.02 percent in 2014.

But the statistics agency also warned of risks to its fresh forecasts such as currency volatility, China’s economic adjustments and the global impact of policy changes under U.S. President Donald Trump.

Those risks and expectations for even milder inflation this year suggest the central bank will keep interest rates unchanged when it meets next month, analysts said.

“One of the catalysts (for GDP) is the upcoming smartphone releases,” said Xiaojia Zhi, Greater China economist with Bank of America Merrill Lynch in Hong Kong.

Among new product launches, Apple Inc AAPL.O is widely expected to debut its new iPhone 8 later this year, helping to boost demand for companies plugged into global electronics supply chains.

Exports are expected to rise 8.57 percent this year, the statistics agency said, a bump up from the 8.5 percent estimated in February.

However, BAML’s Zhi said a higher comparison base for the second half and a potential weakening in Chinese demand could weigh on export growth.

The government said first-quarter GDP rose a revised 2.60 percent compared with the same period a year earlier, largely in line with an initial reading released last month.

At the same time, it trimmed its second-quarter growth forecast but raised third- and fourth-quarter estimates.

Softer export order growth and a slight contraction in industrial output, the first in nine months, in April “still means that the 2Q growth would fall short of expectations, which also has negative implications for the whole-year forecast numbers,” said DBS in a note this week.

“The situation going forward may not be as good as expected, so the central bank’s monetary policy will not change,” said Lucas Lee, an analyst at Mega International Investment Services in Taipei.

Among major concerns has been a sharp rise in the Taiwan dollar TWD=, which could hurt exporters' competitiveness.

It has appreciated more than 7 percent against the U.S. dollar so far this year as Taiwan’s central bank scaled back its foreign exchange interventions to get off a U.S. watch list for currency manipulation.

Reporting by Jeanny Kao and J.R. Wu; Additional reporting by Liang-sa Loh; Editing by Kim Coghill