Exports could see 40 percent year-on-year growth this year if they average between US$23 billion and US$24 billion per month in the next two quarters, he said.

That will propel the nation’s GDP to “an upside of more than 1 percentage point” on top of the bank’s latest GDP forecast of 7 percent for this year, up from its previous forecast of 5 percent, he said. 

The local economy, however, still faces downside risk in the second half of the year if the credit crisis in Europe worsens and triggers a second round of liquidity woes in the US that expands to Asia, he said.

Citi’s estimate of 7 percent GDP for this year was reached on the assumptions that exports and imports would grow 19.2 percent and 22.3 percent respectively from one year earlier and a jump in gross fixed capital of 13.6 percent on top of flat growth in private consumption and government spending at 2.2 percent and 1.3 percent respectively. 

In spite of the nation’s better-than-expected economic fundamentals, Cheng expects the central bank to refrain from interest rate hikes until the first quarter of next year, when a 25 basis point hike may be set one or two weeks ahead the US Federal Reserve’s rate hike decision, Cheng said.

Global economic uncertainty and the high domestic unemployment rate remain of imminent concern to the central bank, he said.

The manufacturing sector, mainly the high tech industry, is adding new jobs, but the service sector has yet to follow suit, he said. 

Citibank forecast the jobless rate will fall below 5 percent only in the second quarter of next year.

Moreover, the bank’s primary estimates showed that wage hikes in China will have a limited impact on economies on both sides of the Taiwan Strait, Cheng said.

The hike is expected to put mild inflationary pressures on China if increases in income further boost domestic consumption there, which will help transform China from a world manufacturing base to a consumption market, he said. 

If China’s economy grows 8 percent each year in the next decade, its consumption market will also average 10 percent growth each year, Cheng said.

Citi expects China’s consumer price index to jump 4 percent this month from last month’s 3 percent, which is likely to force its monetary regulator to hike interest rates twice in the next two quarters.