Tue, Apr 13, 2004 - Page 10 News List

HSBC raises GDP growth estimate

UPBEAT FORECAST The bank's report on the nation's economic outlook says that corporate demand is fueling GDP growth and that direct links remain a distant goal

By Joyce Huang  /  STAFF REPORTER

HSBC, the world's second-biggest bank by market value, yesterday raised its estimate of Taiwan's economic growth this year to 6.5 percent from an earlier prediction of 5.0 percent.

"Demand for credit -- one of the key signs that an economic recovery is becoming self-sustaining -- is rising," HSBC economist Arthur Woo said yesterday in a report on the nation's economic outlook, adding that corporate demand has contributed to this pick-up.

The report said the nation's economic prospects are bright despite obstacles such as the political dispute over the presidential election.

The UK lender expects the situation to return to normal soon once tempers have cooled down.

"This is based on our belief that the politicians know that it is in Taiwan's best interests to show that its democratic process is functioning properly, particularly to the PRC government," the report said, adding that the political issue should result in no significant damage to either consumer or business confidence.

The bank, however, isn't enthusiastic about the economic stimulus packages proposed by either the Democratic Progressive Party or the Chinese Nationalist Party (KMT), saying that both made no specific or feasible pledges on how to improve the economy.

The bank also remains skeptical about any immediate benefits from direct cross-strait links -- a policy that both President Chen Shui-bian (陳水扁) and KMT Chairman Lien Chan (連戰) have vowed to pursue -- although it is confident that the links will eventually be implemented.

Competing agendas

"Direct trade links remain distant," Woo said in the report, "[The] links will require serious negotiations with Beijing, which may have a different agenda and timetable."

Despite the difficulty, Chen will have to pursue the links since the nation's economic relationship with China has deepened during his tenure, with approved indirect investment totaling US$7.7 billion last year from US$1.3 billion in 1999, the report said.

Since China has a significant impact on Taiwan's economy, there are concerns that the domestic export sector may be hit by efforts to cool the surging economy in China.

But HSBC concluded that China's importance shouldn't be exaggerated.

The lender said China's economy is likely to register another year of strong GDP growth, with an estimated 8.8 percent gain, though not at the same red-hot pace as the 9.1 percent in 1999.

Insulated

Downward pressure on China's demand for foreign goods is likely to be most visible in its appetite for investment and capital-intensive goods rather than consumer-related goods, raw materials or intermediate inputs, it added.

Taiwan should not suffer too much because most of its exports to China are either consumer-related goods or intermediate inputs, HSBC said.

HSBC also shrugged off concerns that the global manufacturing cycle is close to peaking, while dismissing worries that the nation faces growing inflationary pressures.

The US ISM manufacturing index suggests that Taiwan's exports would remain on a firm footing for the next six months, or well into the third quarter, the bank said.

"In short, it seems increasingly evident that Taiwan is likely to experience the best of both worlds, namely strong economic growth and benign inflation in the coming quarters," the report concluded.

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