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Consumer confidence is picking up: Amex Bank

The nation's weak consumption and consumer confidence are expected to gradually revive next year as the consumer credit abuse storm subsides, American Express Bank said yesterday.

Taiwan's private spending has slowed this year, hurt by consumer credit problems and weak confidence, John Calverley, chief economist with American Express, told a media briefing in Taipei yesterday.

"The worst may be over soon, pointing to a gradual pick-up in consumer spending next year since the consumer bad loans issue is easing off," Calverley said.

American Express predicted Taiwan's GDP growth would reach 3.8 percent this year, and accelerate to 4 percent next year.

The figure is lower than government estimates. The statistics bureau last month marginally cut its official economic growth forecast for this year to 4.28 percent from the 4.31 percent predicted in May, citing the impact of consumer bad debts and stagnant consumer spending.

The export sector is the main pillar supporting the nation's GDP growth, Calverley said, adding that he remained optimistic about the outlook for export growth sustained by demands from Japan and China, despite the slowdown in demand in the US.

Meanwhile, Calverley said inflation is now less of an issue to Taiwan as oil prices stabilize. The economist predicted that crude oil prices would remain at between US$50 and US$60 per barrel for the next few years as OPEC would like to sustain the price level following the recent sharp decline.

The nation's consumer price index (CPI), a criterion used to gauge inflation, dropped 0.57 percent last month from a year ago on falling clothing and vegetable prices, marking the first decline since Dec. 2003, according to government statistics.

For the first eight months of the year, Taiwan's CPI rose 1.1 percent from the equivalent period last year, the data showed.

As a result, Calverley expected Taiwan's monetary tightening cycle to end after one more interest rates hike. The only reason for rates increases is to narrow the spread with the US rates, he said.

The nation's central bank is scheduled to review its monetary policy in a quarterly meeting on Thursday.

On US monetary policy, Calverley challenged market consensus about possible rates cuts in the first half of next year due to economic slowdown, predicting the Federal Reserve (Fed) would keep rates unchanged at 5.25 percent for the next year to 18 months before another tightening cycle starts in 2008.

The Fed would not reduce rates because they have anticipated the economic deceleration and the unlikelihood of the housing market crashing, he explained.

The US is expected to resume rates hikes in 2008, backed by the country's economic pickup, uplifting the Fed funds rate to peak at a maximum of 6.5 percent, Calverley added.

The US could see its GDP growth decelerate to 2.8 percent next year from 3.3 percent this year and then rebound slightly to around 3 percent in 2008, American Express predicted.

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