Sat, Feb 07, 2009 page12

• Economists see sharp export fall, differ on rate cut

  • By Crystal Hsu / STAFF REPORTER
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  Exports, traditionally the primary driver of the nation’s economy, are forecast to have contracted by between 46 percent and 60 percent last month from a year ago amid falling demand for Taiwanese goods and a nine-day Lunar New Year holiday, economists said yesterday.

  However, they differed on whether the central bank would introduce another rate cut this month to stimulate domestic consumption, which is seen as critical to mitigating the impact of falling exports on the economy.

  Cheng Cheng-mount (鄭貞茂), chief economist at Citigroup Inc Taiwan, estimated that exports shrank 56 percent last month as the drop in outbound shipments showed no signs of easing and there were only 16 working days.

  “It is not surprising if foreign sales contracted by half last month, with the value falling below US$10 billion given fundamental and seasonal factors,” Cheng said by telephone.

  The Ministry of Finance is due to unveil its latest data on outbound shipments on Monday. The December figure sank a record 41.9 percent year-on-year to US$13.64 billion, prompting the central bank to announce a rate cut 30 minutes later to galvanize economic activity at home.

  Exports, which account for about 60 percent to 65 percent of the nation’s GDP, contributed 80 percent to GDP growth in recent years as private consumption remained sluggish.

  Cheng said the central bank would leave interest rates untouched this month as it would probably conclude that the drop in shipments has more to do with the holiday than other factors.

  “A rate cut would have a limited effect on fixing the economy in Taiwan, where the financial sector is not suffering from a credit crunch like its counterparts in the US and Europe,” Cheng said. “The overnight lending rate is low enough at 0.15 percent.”

  However, the economist said the central bank could lower the discount rate to 1 percent — from the present 1.5 percent — next month at the earliest to boost domestic demand.

  Morgan Stanley Taiwan Ltd painted a bleaker picture, forecasting that exports fell a whopping 60 percent last month given the long holiday break and a less competitive currency. The brokerage said the central bank might cut the discount rate by 50 basis points to curb the slump.

  Tony Phoo (符銘財), a Taipei-based economist at Standard Chartered Bank, estimated the decline in exports was 48 percent, attributing it to holiday and economic reasons.

  Phoo said the chance of a rate cut this month was small unless the drop turned out much worse than expected.

  “It is unlikely that the actual results would upset market expectations, which are grim enough, but anything is possible in theory,” Phoo said by telephone.

  Liang Kuo-yuan (梁國源), president of Polaris Research Institute (寶華綜合經濟研究院), said the central bank might make another rate cut later this month if the economy’s performance in the fourth quarter turned out even worse than expected.

  The government is due to publish the data on Feb. 19.

  “A cut could narrow rate gaps between countries to prevent profit-taking and help spur economic activity,” Liang said by telephone.

  But, “with interest rates lower than 1 percent, the agency will have little room to maneuver when a [domestic] financial crisis arises,” he said.
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