Tue, Jan 20, 2009 - Page 12 News List

BNP, Fitch downgrade forecast, rating

GLOOMY While BNP changed its economic forecast from positive to negative, Fitch Ratings lowered the nation’s default rating amid concern on rising government debt

By Crystal Hsu  /  STAFF REPORTER

Two foreign financial institutions yesterday painted a gloomy picture of the nation’s economic and financial health despite government efforts to prop up an ailing economy.

BNP Paribas, the top financial service provider in France, yesterday said it expected the Taiwanese economy to contract by 3.3 percent this year given slumping exports and shrinking demand from China, its bigggest export destination. The firm earlier projected a GDP growth of 1.5 percent for Taiwan.

Meanwhile, Fitch Ratings adjusted its Issuer Default Rating (IDR) on the local currency to “negative” from “stable” amid concern over rising government debt as the Chinese Nationalist Party (KMT) administration seeks to boost domestic demand to offset slowing exports.

Hans Redeker, BNP Paribas’ global head of forex strategy, told a news conference in Taipei yesterday, that the bank slashed Taiwan’s economic outlook because of its heavy reliance on exports amid a global economic downturn.

The global slump has also hit Taiwan’s Asian rivals, with Hong Kong expected to contract 3.4 percent this year, while South Korea and Singapore were forecast to decline 2.4 percent and 2.8 percent respectively, a BNP Paribas report showed.

Taiwan’s outbound shipments plunged a record 41.9 percent year-on-year last month, with sales to China — including Hong Kong — shrinking 54 percent.

Redeker put China’s GDP growth forecast at 7.7 percent for this year after posting 9.3 percent growth last year and 11.9 percent growth in 2007. He said China’s weakening economy would deal a further blow to Taiwan, as China accounts for about 40 percent of Taiwanese exports.

The economist projected that the central bank would lower the benchmark interest rate to 0.5 percent later this year, from the current 1.5 percent. Redeker said the rate would remain unchanged at 0.5 percent for Hong Kong this year, while South Korea would cut its rate to 1.5 percent from the present 3 percent.

Separately, Fitch Ratings lowered the nation’s default rating, citing the expected deterioration in Taiwan’s fiscal position in the coming two years.

“The improvements in Taiwan’s public finance in [the recent four years] are set to reverse course, with a growing government deficit financed by borrowing,” said Vincent Ho, an associate director in Fitch’s Asia sovereign ratings team. “Government debt is projected to rise accordingly, putting pressure on the local currency IDR.”

The agency forecast that government debt would reach a record high of 47 percent of the nation’s GDP this year, or 2.8 times its fiscal revenue for the same period. Debt ratios could deteriorate further if Taiwan experiences deflation but they are already higher than the “A” medians, Fitch said.

The report prompted the Ministry of Finance to issue a clarification later in the day, saying Taiwan remained fiscally sound compared with developed countries such as the US, France, the UK and Japan.

“The nation’s debt management is appropriate,” the ministry said in a statement. “The stimulus measures will help spur economic growth and contribute to fiscal health by generating more tax revenues.”

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