Taiwan's economic growth slowing

Taiwan's economy is expected to expand this year at a slower pace than last year's 5.7 percent, with interest rates likely to rise by as much as half a percentage point, analysts from three rating companies said.

"Taiwan's economic growth is slowing down, the cycle is definitely not favorable," Jonathan Lee (李信佳), director for financial institutions at Fitch Ratings Ltd said in a briefing in Taipei.

"2005 will be a difficult year," he said.

Lee said the economy is likely to grow 3.7 percent this year and 4.1 percent next year.

The government on Aug. 18 lifted its economic growth forecast for next year to 3.65 percent, from 3.63 percent, citing robust consumer spending.

"I doubt that Taiwan's GDP can grow 3.65 percent this year," said Jerry Chien (簡宗正), representative director at Moody's Taiwan Corp in Taipei in the same briefing. "People with high incomes are moving out, instead of moving in, which is translating into declining domestic demand," he said.

Tony Tsai (蔡東松), director of corporate ratings at Taiwan Ratings Corp (中華信評), a subsidiary of Standard & Poor's, said the country's top 50 companies are expected to see an average 29 percent decline in earnings this year after a peak last year.

"If we consider Taiwan as a company, we see more strategy talking rather than execution," Tsai said in the same briefing. "The government should have done much more to stimulate the economy," he said.

Both Moody's and Taiwan Ratings declined to make a forecast for Taiwan's economic growth.

Taiwan Ratings and Fitch expect the central bank to raise interest rates further to keep inflation in check.

Tsai sees a rate increase of no more than half a percentage point by the end of next year, while Lee expects a rise of about 30 basis points by next year from the current 2.125 percent. A basis point is 0.01 percentage point.

"With GDP growth next year expected to remain at about the same as this year, the rate increase should be only half of the Federal Reserve Fund rate's pace," Tsai said.