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Taiwan leaps past S'pore and other Asian Tigers as economy upgrades with iPhone

[Taipei] 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 per cent on Thursday, according to the median estimate of economists surveyed by Bloomberg News, at least 1 per centage 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 fuelled 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 Ltd. 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 industrialisation and export growth saw their economies boom. Hong Kong and Singapore evolved into financial centres, while Taiwan and Korea became known more for their technology exports.

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 are currently getting a boost from Apple Inc, which counts Taiwan's two largest public companies as suppliers. IPhone unit sales jumped 40 per cent 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," Mr Yeung said.

Taiwan's economy is not without its challenges. Along with the wobbling USrecovery, 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 labour market has help 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 per cent jump from the prior year.

While its days of boasting 10 per cent 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.

"For foreign investors, Taiwan is a safe place," said Rick Lo, a senior economist at Fubon Financial Holding in Taipei. "Taiwan dollar's volatility will also be less than in other countries. This is why foreign investors choose Taiwan." BLOOMBERG

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