Fri, May 23, 2008 - Page 12 News List

Worst of the US subprime crisis is not over: analyst

HARD TIMES AHEADStandard Chartered Bank economist Nicholas Kwan is pessimistic on the economy and the bank have cut their GDP growth rate forecast


Standard Chartered Bank economist Nicholas Kwan (關家明) said yesterday that it would be premature to say the worst of the US subprime crisis is over and he expected the impact would spread from the US economy to Asian economies, including Taiwan.

Contradicting more optimistic economists, Kwan said: “The US has past the worst of the first phase, but we are entering the second and the third phases.”

“It is not only a credit crisis, but is evolving into an economic crisis,” Kwan told a press briefing in Taipei yesterday.

The second phase will be how the stress on the financial sector feeds into the wider economy, another Standard Chartered economist, Gerard Lyons, said in a report dated May 15. And in particular, there would be a focus on how the US was affected and on how any problems in the US impact the rest of the world, he said.

The link between the Asian and US economies would be weaker when compared to the last financial crisis in 2001 and 2002, Kwan said.

“The economic growth of Asian countries will weaken because of the US recession. But the decline will not be as deep,” Kwan said.

Standard Chartered cut its forecast for Taiwan’s GDP growth this year to 2.8 percent in February from its previous estimate of 3.8 percent, after reducing its projections for the economic outlook in both the US and China.

Kwan said the US economy may take about two years to recover, which strengthens the bank’s belief that the US dollar will weaken further in the long run. The yuan will also appreciate against the greenback as Beijing has been trying to lure more foreign investment, he said.

In expectation of weaker GDP growth and inflation pressures in the second half of the year, Standard Chartered economist Tony Phoo (符銘財) said the central bank, like its Chinese counterpart, would face a dilemma over monetary policy.

Phoo expects the central bank to stop increasing interest rates, a policy it has carried out over the past 15 quarters.

“The central bank may keep the key interest rates unchanged during the June meeting,” he said.

In the longer term, Phoo expects the new government’s policies to increase the number of Chinese tourists visiting Taiwan and improve trade ties with China to boost economic growth in the next two or three years.

“The help will be gradual, but the boost in [consumer] confidence will be great,” Phoo said.

Chinese tourists contributed about 0.25 percent to the GDP last year, with Chinese visitors accounting for one-fourth of the total of 4 million tourists, Phoo said, citing government statistics.

The tourism sector made up about 1.5 percent of GDP last year and the nation would certainly benefit from an increased number of Chinese tourists, considering the boost to retail sales and related businesses, which was difficult to calculate at present, he said.

The nation’s financial sector would benefit greatly from China’s fast-growing economy and a liberalized financial sector, if President Ma Ying-jeou (馬英九) fulfills his promise to allow local banks and funds to invest in China’s capital markets, Kwan said.

But, the growth would only be seen once the problem of implementing a payment settlement mechanism between Taipei and Beijing had been solved, Kwan said.

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