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Goldman forecasts stable GDP growth

Despite a modest slowdown in global growth next year, the nation's economy is forecast to expand by 4.5 percent, up from an estimated 4.2 percent this year, according to a report released by Goldman Sachs last week.

Among Asia's "four little dragons," Singapore is forecast to take the lead with GDP growth of 6.2 percent next year, followed by Hong Kong's 5.5 percent, Taiwan's 4.5 percent and South Korea's 4.0 percent, Goldman Sachs said in a report dated last Wednesday.

The report, entitled A happy slowdown? forecast that the global economy would grow by a slower 3.9 percent next year, compared with a projected 4.6 percent growth this year, because of weaker US domestic demand, the report said.

Global inflation shall ease modestly in line with softer US domestic demand, helped by more stable energy prices, it said.

Despite the slowdown in US demand, further acceleration in domestic demand in Japan and the BRIC (Brazil, Russia, India and China) nations would help offset the impact, said Jim O'Neill, head of the firm's global economic research.

"As part of this happy scenario, we project that the contribution to world demand from Japan and from the BRICs will likely exceed that of the US from now through 2007," O'Neill wrote.

Goldman Sachs expects the BRIC economies to collectively expand by 7.9 percent next year, compared with a market consensus of 7.7 percent.

As a result, "both BRIC-denominated investment funds and multinationals with greatest exposure to the BRICs continue to constitute the best investment opportunities," as the US dollar will weaken over the next six months, the report suggested.

Goldman Sachs also aggressively projected that after the US Federal Reserve raised its funds rate by 25 basis points to 5.25 percent in late June, the next move by the US central bank might be a rate cut, though probably not until the spring of next year.

In another report released by Lehman Brothers on Sept. 1, the investment bank lowered its GDP projection for Taiwan to 3.5 percent, after it had trimmed the forecast to 4 percent in the middle of March. This placed Taiwan on the very bottom compared to its Asian peers, excluding Japan, in Lehman Brothers' list.

Rob Subbaraman, an economist at the equity research house, warned that the nation's "prolonged political uncertainty" could hurt investment, while the sharp increase in household debt, coupled with rising rates, is constraining consumption.

Last month, the nation's statistics bureau downgraded its GDP growth forecast for this year to 4.28 percent from the 4.31 percent it predicted in May owing to the negative impact of consumer loan defaults.

Subbaraman further pointed out that the nation's growth mix has become lopsided as it is driven mostly by exports, while domestic demand is lackluster.

The Ministry of Finance's figures showed that the nation's export growth last month slowed to 16.6 percent year-on-year from 21.2 percent in July.

The slower expansion was foreshadowed by weaker growth in export orders, which dropped from 26 percent year-on-year in May to 20.6 percent in June and 19.4 percent in July, the statistics showed.

In addition, since electronics products account for more than 30 percent of the country's exports, the recent drop in the US semiconductor equipment book-to-bill ratio -- 1.06 in July versus 1.14 in June -- suggests that Taiwan's exports may be negatively affected.

Recent signs of a slowdown in the US and Asia excluding Japan economies have likely had a negative impact as well, leading to a smaller trade surplus of US$1.21 billion last month, compared with the US$1.8 billion surplus in July.
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