With the cloud over the global economy looming larger, economists at Standard Chartered Bank (渣打銀行) yesterday said Taiwan faces severe downside risk and cut its forecast for the nation’s GDP growth to 0.7 percent next year from the 3.1 percent it projected last month.
The financial service provider attributed the sharp down adjustment to the nation’s weaker-than-expected exports, especially trade with China, which posted a record drop of 38.5 percent last month.
“We have lowered Taiwan’s GDP growth forecast to 0.7 percent next year given its sinking outbound shipments” as well as a faster-than-expected economic slowdown in China,” Tony Phoo (符銘財), the bank’s Taipei-based economist, told a media briefing.
Exports, the main driver of the nation’s economic growth, contracted by the fastest pace in seven years at 23.3 percent last month compared with a year ago, signifying deeper economic downside risk, Phoo said. The bank had put the drop at 9.84 percent.
“Most alarming is [the sharp fall in] shipments to China, Taiwan’s largest overseas market and key offshore base for many local information technology firms,” Phoo said.
Stephen Green, the bank’s China-based chief economist, revised the GDP growth forecast for China to 7.5 percent, a figure deemed lackluster compared with China’s performance in recent years.
Green said China’s growth would be fueled by domestic demand and promise little business potential for export-oriented firms from Taiwan unless they restructure their corporate strategy and tap into new markets.
Phoo said Taiwanese manufacturers would stay cautious and hold back investment or expansionary plans, aggravating an already gloomy job market.
To reverse the trend, the central bank would likely adopt aggressive intervention measures and cut the rediscount rate by 75 basis points today to help spur domestic demand, Phoo said.
“Since the monetary regulator appears set to cut the rate to 1 percent next year, it might as well facilitate the process rather than approach the target slowly,” Phoo said.
The economist said the series of rate cuts have had limited effect in boosting consumer or investment spending, with the economic outlook remaining turbid.
Green echoed the sentiment, saying rate cuts around the world served more to placate manufacturers than boost exports as the problem lies in shrinking demand, not rising costs.
The bank said the consumer price index for Taiwan could gain 1.6 percent next year and the economy could start to recover in the second half.
The bank’s revised GDP growth forecast is lower than Citigroup’s estimate of 1.5 percent, the government’s projection of 2.12 percent and BNP Paribas’ forecast of 2 percent. It is also lower than Chung-hua Institution for Economic Research’s (中經院) 1.24 percent prediction and the Economist Intelligence Unit’s 1.3 percent.
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