Another foreign brokerage drastically lowered its forecast for Taiwan, saying the economy could contract 6 percent amid sagging export demand.
Morgan Stanley, a global financial service provider, revised down its GDP forecast this year to minus 6 percent, from its prior forecast of 0.5 percent growth. The new figure is the second-lowest projection among foreign research houses, behind Hong Kong-based CLSA, which predicted an 11 percent drop in a report dated Feb. 4.
Morgan Stanley economist Sharon Lam (林琰) attributed the downward adjustment to a forecast 23 percent annual decline in exports, following disappointing data releases.
Outbound shipments contracted a record 44.1 percent last month after plunging 41.9 percent a month earlier, the Ministry of Finance said a day earlier.
“Taiwan is an extremely open economy where exports account for a share of about 70 percent [of] GDP,” Lam said, predicting that the nation would suffer an unprecedented slump of 23 percent in exports this year and post a moderate rebound of 8 percent next year.
The economist said external demand shocks would plague private consumption, which is forecast to contract 4.5 percent, and aggravate concerns over job security.
“If not managed carefully, a vicious cycle can develop from deflation, a liquidity trap and capital outflow,” Lam said. “Under such a scenario, even record-low interest rates will not revive the economy.”
The central bank has cut the benchmark interest rate six times to 1.5 percent from 3.625 percent in September. Lam expects the monetary regulator to lower the rate further to 0.5 percent in the middle of the year.
Despite the rate cuts, Jenny Tsai (蔡笛韻), Morgan Stanley’s property analyst, said the mortgage rate advanced slightly as domestic banks turned increasingly risk averse.
Tsai forecast that local property prices would continue to correct by 20 percent this year.
Given falling external demand, the brokerage forecast the government would take more actions to fix the economy.
“We expect rapid economic deterioration [to strengthen] the political will to take on more aggressive remedial action. The administration should be capable of formulating rapid reactions to support the economy,” the report said.
The brokerage praised the consumer voucher program as a successful policy that delivered “stronger-than-expected stimulation of pent-up demand.”
But Morgan Stanley voiced concern that this has had little impact on the heavily export-weighted stock market, as domestic consumption accounts for only a modest share of the TAIEX in terms of market capitalization.
Morgan Stanley’s forecast is lower than projections by BNP Paribas and Citigroup Taiwan Inc that GDP would contract by 3.3 percent and 0.7 percent respectively.