Taiwan is poised to race ahead of its fellow Asian tigers for the fourth straight quarter, as consumers loosen purse strings and companies churn out new iPhones.

The island is forecast to report first-quarter economic growth of 3.5 percent on Thursday, according to the median estimate of economists surveyed by Bloomberg News, at least 1 percentage point more than South Korea and Singapore and the projection for Hong Kong. Such outperformance has driven the currency to the top of Asia this year and the benchmark equity index to about 10,000 for the first time in 15 years.

The island’s strength has made its central bank one of the holdouts from a global easing wave that includes fellow tigers South Korea and Singapore. Taiwan’s evolution from the low-end manufacturing that fueled its initial growth to a more modern, consumer-oriented economy serves as an example for China, which is seeking to pull off a similar transition.

“After being on the path of an export-oriented economy for a couple of decades, Taiwan is shifting to a more domestic demand-driven economy,” said Raymond Yeung, an economist at Australia & New Zealand Banking Group in Hong Kong. “It’s the same for China and other Asian economies.”

In the 1970s, South Korea, Hong Kong, Singapore and Taiwan became known as the Asian tigers as rapid industrialization and export growth saw their economies boom. Hong Kong and Singapore evolved into financial centers, while Taiwan and Korea became known more for their technology exports.

Tech supplier

As high-tech suppliers, corporate giants such as Taiwan Semiconductor Manufacturing Co., known as TSMC, took advantage of the boom in consumer electronics. Others like HTC Corp. sought to establish global brands.

Corporate profits have received a boost from Apple, which counts Taiwan’s two largest public companies as suppliers. IPhone unit sales jumped 40 percent last quarter to 61.2 million as newer models released in 2014 bolstered demand. “Taiwan’s economic performance almost mirrors Apple’s product life cycle,” Yeung said.

The tech industry’s bright prospects have prompted some Taiwanese firms to boost investment. TSMC, the world’s biggest contract chipmaker, said this month it will spend as much as $11 billion building, buying or upgrading facilities this year, compared with $9.5 billion in 2014. New factories planned for central Taiwan may create 5,000 jobs.

Economic challenges

Taiwan’s economy is not without its challenges. Along with the wobbling US recovery, the effect of cheaper oil on related shipments such as petrochemicals is weighing on exports.

Currency gains may also make overseas sales less competitive compared with rivals South Korea and Japan.

Like much of the world, Taiwan is also battling deflation. The oil importer saw consumer prices fall in the last three months. With core inflation holding up, the central bank chose to hold its policy rate in March, extending a run of steady borrowing costs since 2011.

An improving labor market has helped lift consumption. Unemployment stayed near a 14-year low last month, while wage increases have quickened. Services industries have also boomed as the island attracted 9.9 million tourists in 2014, a 24 percent jump from the prior year.

While its days of boasting 10 percent growth may be long gone, the steadiness of Taiwan’s expansion is drawing global funds. With the world’s fifth-largest foreign reserves and a persistent current-account surplus, the local dollar is expected to be relatively resilient when the US eventually raises interest rates, especially as Taiwan isn’t expected to ease policy this year.

“The central bank won’t need to inject additional monetary stimulus,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. “We’re quite upbeat about Taiwan this year.”

Bloomberg

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