Standard Chartered Bank hikes its GDP forecast for Taiwan

Standard Chartered Bank upgraded its forecast for Taiwan's economic growth this year on expectations of stronger export momentum and a revision of its previous pessimism, the bank said yesterday.

Standard Chartered raised its GDP growth forecast for this year to 3.8 percent, up from the previous 3.3 percent, and to 4.1 percent from 3.5 percent for next year.

"The upgrade is to reflect a promising outlook on Taiwan's exports ? backed by strong US corporate demand and the strength in the high-tech sector like semiconductor shipments," Tai Hui (許長泰), an economist at Standard Chartered Bank (Hong Kong) Ltd, told a media briefing in Taipei yesterday.

HIGH-TECH HELP

Exports are expected to grow 10 percent this year, riding on the expansion of the information technology cycle and robust demand from China, Hui said.

Healthy export momentum is expected to offset a soft domestic demand that has been weakening since the fourth quarter of last year because of the a credit crunch caused by the high level of consumer bad debts and a lack of confidence in the economic outlook, Standard Chartered said.

Despite the likelihood of the US economy decelerating in the second half of this year, Japan's rising consumer demand -- powered by its economic recovery -- could drive Taiwan's export impetus, Hui said.

DIFFERING VIEWS

Earlier this month, Deutsche Bank cut its GDP growth forecast to 4 percent, down from 4.5 percent predicted in February, while Lehman Brothers last month downgraded its forecast from 5 percent to 4 percent on worries that the sharp rise in household debt and rising interest rates could constrain consumption.

The recent political upheaval, however, is not expected to affect Taiwan's economy.

"Not unless there is a dramatic change in the economic policy of the current government," Hui said.

INTEREST RATES

He expects the central bank to continue tightening monetary policy through rate hikes three more times before the end of the year, with a 0.125 percentage points each time, to narrow its rate spread with the US and turn negative real interest rates to positive after factoring in inflation concerns due to rising energy prices.

The NT dollar, meanwhile, would strength along with major Asian currencies on a scale similar to that of Japanese yen, Hui said.

As yen is expected to rise to 102 to the US dollar by the end of the year, Hui predicted the NT dollar would appreciate by 10 percent in the meantime.

The local currency yesterday traded at 32.625 per US dollar in Taipei.