Taiwan Business Forecast Report Q1 2013

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook

Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Long-Term Political Outlook
Legal Status Quo To Prevail In 2010s
Taiwan's long-term political prospects are inseparable from its relations with China, and while cross-Strait relations have thawed in
recent years, we believe the status quo will largely prevail While further economic integration is likely between the two Chinas, we
exclude meaningful political convergence, with Taiwan extremely unlikely to regain internationally recognised independence As a result,
we believe Taiwan will remain in a political no-man's land – with this being the least worst path for political stability
TABLE: TAIWAN POLITICAL OVERVIEW
Foreign Policy
Political Divide To Curb Cross-Strait Investment Impact
Taiwan appears to be on track towards a fourth phase of opening up the economy to greater Chinese investment While we believe
that this is likely to engender considerable economic benefits for the island in the long-run, a deepening political divide and fervent
opposition from the opposition camp is likely to curtail the possibility of any immediate material benefit in the shorter-term

Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Structural Growth At Risk
While we expect the recent rebound in Taiwan's economic activity to continue through Q412, we are less sanguine on the country's
growth prospects going into 2013 Trade and investment activity are likely to remain subdued, as we hold a downcast take on most of
the island's major source markets
TABLE: ECONOMIC ACTIVITY
Balance of Payments
Trade Rebound Transient, 2013 Growth Prospects Dim
The recent rebound in Taiwan's economic activity is likely to have further room to run, with both output and exports likely to breeze
through year-end Looking ahead into 2013, however, the supportive pressure from new product launches and a stabilising Chinese
economy is likely to diminish
TABLE: CURRENT ACCOUNT
Fiscal Policy
Fiscal Profile Faces Considerable Downside Pressure
The government's endeavours to achieve a narrowing fiscal deficit in 2013 are based upon tax revenue projections that appear too
optimistic, in our view Moreover, the country's archaic tax system continues to impinge on budgetary revenues, while the lack of
transparency in the budget drafting and reporting process prevents an accurate picture of the country's fiscal health from being painted
Meanwhile, the government's fiscal position also faces downside risks from a possible capital injection into Taipower, as the stateowned
power company's fiscal deterioration shows few signs of improving
TABLE: FISCAL POLICY
Monetary Policy
Inflation Easing, Monetary Policy To Follow
With food and electricity prices set to ease in the months ahead, we expect headline inflation, which has surged in recent months, to
follow behind An ongoing weakening economy is expected to place further downside pressure on consumer prices, as both demandled,
and cost-push inflation continue to wane As inflationary pressures abate, we expect the central bank to direct policy initiatives
towards supporting growth, and thus maintain our expectations for an easing in monetary policy
TABLE: MONETARY POLICY

Chapter 3: 10-Year Forecast
The Taiwanese Economy To 2021
The Mainland Factor
We think the odds are good that Taiwan will be able to revive growth over the coming years – a view predicated on improving relations
with the mainland, the island's robust endowment of human capital and entrepreneurial zest Challenges include diversifying the
relatively narrow export portfolio and dealing with bleak demographic dynamics
TABLE: LONG-TERM MACROECONOMIC FORECASTS

Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
TABLE: BMI BUSINESS & OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: ASIA – ANNUAL FDI INFLOWS
TABLE: TRADE & INVESTMENT RATINGS
Operational Risk

Chapter 5: Key Sectors
Oil & Gas
TABLE: OIL & GAS – HISTORICAL DATA & FORECASTS, 2009-2016
TABLE: ENERGY AND UTILITIES INFRASTRUCTURE INDUSTRY DATA, 2009 – 2016
Infrastructure
TABLE: CONSTRUCTION AND INFRASTRUCTURE INDUSTRY DATA, 2009 – 2016
Transport Infrastructure:
TABLE: TRANSPORT INFRASTRUCTURE INDUSTRY DATA, 2009 – 2016
Other Key Sectors
TABLE: FOOD AND DRINK SECTOR KEY INDICATORS
TABLE: PHARMA SECTOR KEY INDICATORS
TAIWAN AUTOS SECTOR KEY INDICATORS
TAIWAN DEFENCE AND SECURITY SECTOR KEY INDICATORS
TAIWAN TELECOMS SECTOR KEY INDICATORS
TABLE: FREIGHT KEY INDICATORS

Chapter 6: BMI Global Assumptions
Global Outlook
Mixed Signals For The New Year
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST 49