Thu, Jan 29, 2009 - Page 6 News List

Citigroup downsizes its 2009 outlook for Taiwan

FORECASTThe US bank said the Taiwanese economy would shrink 4 percent, 1.5 percent and 0.1 percent in the first three quarters respectively, before bouncing back

By Kevin Chen  /  STAFF REPORTER

Citigroup said in a research report issued on Friday that Taiwan’s economy could show a contraction of 0.67 percent this year, a downward revision from its estimate of 1.5 percent made last month, as the worldwide economic slump continues worsening.

The US bank also said Taiwan’s economy could fall into a technical recession in the fourth quarter after the third-quarter real GDP figure is already negative, the bank said in the report titled Asia Economic Outlook and Strategy.

A technical recession is generally defined as two consecutive quarters of contraction in economic growth. Citigroup predicted Taiwan’s GDP could shrink 3.4 percent in the three months ending Dec. 31 after a contraction of 1 percent in the previous three months.

Taiwan’s economy is highly dependant on international trade and the nation’s real output is likely to fall this year as the prospects for global demand continue to deteriorate.

“The outlook for the global economy continues to deteriorate,” the report said. “There are scant signs that the momentum of this negative cycle is waning.”

Based on the government’s latest data, Taiwan’s exports declined by a record 41.9 percent year-on-year last month, with full-year exports up just 3.6 percent from 2007. If the situation does not improve in the first quarter, it is likely that the nation’s GDP growth will be negative for the first three quarters of the year, the report said.

Citigroup said the Taiwanese economy would shrink 4 percent, 1.5 percent and 0.1 percent in the first three quarters respectively, before a growth of 2.9 percent in the final quarter.

The bank’s revised GDP forecast for Taiwan this year is lower than the government’s projection of 2.12 percent growth, Academia Sinica’s 0.56 percent increase and a rise of 0.89 percent forecast by the Taiwan Institute of Economic Research.

But Citigroup’s figure is higher than Fitch Ratings’ 2.1 percent contraction, the Economist Intelligence Unit’s 2.9 percent in slowdown and a decline of 3.3 percent forecast by BNP Paribas.

Looking ahead, Citigroup said several factors would likely weigh on Taiwan’s economic growth and investors’ equity strategy on the market this year. That includes the stabilization of global financial markets and an upcoming redemption of companies’ convertible bonds in the first quarter, especially those in the local DRAM sector. Other factors are investors’ rekindled interest in tech shares, the movement of international capital flows and the strength of the US dollar, it said.

Citigroup also downgraded its GDP forecasts for China, Hong Kong, Singapore and South Korea, citing recent disappointing production and export data from these regional economies.

China, the destination of 40 percent of Taiwan’s shipments, will see its economy grow 7.6 percent this year, down from Citigroup’s previous estimate of 8.2 percent, as the collapse in global trade slowed the Chinese economy markedly in the fourth quarter, the report said.

Singapore and Hong Kong are two economies long confirmed to be in technical recession, but Citigroup said Singapore’s recession deepened in the fourth quarter and predicted the city-state’s economy would shrink 2.8 percent this year, compared to an earlier forecast of a decline of 1.2 percent.

Hong Kong will see its economy contract 2.2 percent this year, while South Korea’s economy may decline 1.8 percent this year from last year, Citigroup said.

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