The financial turmoil abroad and sluggish private consumption at home will drag down the domestic economy, which is expected to remain weak in the fourth quarter and the first half of next year in spite of a series of stimulus measures, analysts said yesterday.
“It is ill-advised to underestimate the at NT$80 billion [US$2.5 billion] in exposure to Lehman Brothers Holdings,” said Wu Chung-shu (吳中書), dean of the College of Management at National Dong Hwa University. “The actual losses could be greater. There are worries there could be another outstanding problem like Lehman Brothers, AIG and Merrill Lynch.”
FULL IMPACT
The Financial Supervisory Commission estimated investments linked to Lehman at NT$80 billion, but Wu, also a research fellow at the Academia Sinica, said he believed the country had yet to assess the full impact of Wall Street’s woes.
The stock market has remained unresponsive to a spate of government measures to invigorate it.
The benchmark TAIEX has declined nearly 16 percent so far this month to close at 5,929.63 points on Friday, even after the Cabinet activated the NT$500 billion National Stabilization Fund a week earlier to shore up the stock market, while the central bank cut interest rates and enlarged repo operations to increase liquidity.
US BAILOUT
Wu said the global economic crisis would not bottom out until the first half of next year, even if Washington’s massive bailout clears Congress.
“It will take between two and three months for relief measures and easy monetary policy to take effect,” Wu said.
“This means we had better brace for a tough fourth quarter,” Wu said.
The government has predicted the economy would regain modest momentum in the coming quarter, when its says its NT$130 billion spending program should increase GDP by 0.45 percentage points, more low-interest loans should be available for home buyers and low-income earners will receive added subsidies.
REAL INCOMES
Kevin Hsiao (蕭正義), head of UBS Wealth Management Research Taiwan, said he did not share the government’s optimism about the recovery.
Hsiao said the measures would boost GDP growth, but failed to address the issue of declining real wages, which has led people to cut spending and put more into bank savings.
“The global slowdown will pose less of a threat if domestic consumption remains active, as in China and other economic neighbors,” Hsiao said.
“Unfortunately, that is not the case with Taiwan,” he said.
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