Thu, Feb 26, 2009 - Page 12 News List

GDP to contract 3.2%: Citibank

MIDDLE OF THE ROAD The revised estimate was higher than forecasts from several other economists who have predicted a drop of between 4 percent and 11 percent

By Joyce Huang  /  STAFF REPORTER

Citibank Taiwan Ltd (台灣花旗) yesterday slashed its GDP forecast for the local economy, predicting it would shrink 3.2 percent this year on worsening exports, compared with previous estimates of 0.67 percent contraction, in the latest in a series of forecast cuts.

The nation’s export-dependent economy will gradually rebound to 3.3 percent growth next year, driven by “a more favorable global environment,” chief economist Cheng Cheng-mount (鄭貞茂) told a media briefing yesterday.

Calling himself “relatively optimistic,” Cheng said he expects the nation’s exports to average a year-on-year decline of 12.5 percent this year, much smaller than the analyst consensus of a decline of as much as 40 percent.

“We’ve seen a pickup of ‘urgency orders,’ which may not be sustained for a long time, but proves the consequence of too much de-stocking in the fourth quarter of last year,” Cheng said.

Low inventories and easing credit in China could both rejuvenate the nation’s exports in the fourth quarter of this year, he said, adding that domestic economic activity would likely continue to contract sharply this quarter and stay in the negative territory until the third quarter.

The US bank’s revised GDP forecast was slightly worse than the government’s prediction of a 2.97 percent contraction for this year, but higher than estimates by several other foreign research institutes.


UBS Investment Research last week said that the local economy would experience a 6.1 percent drop this year, although chief economist Sean Yokota said that Taiwan’s economy would bottom out in the first half of the year and begin posting positive quarterly growth in the second half.

HSBC disagreed, saying that a rebound would not come until next year and forecast a contraction of 5.2 percent this year. Barclays Capital and Goldman Sachs said the economy would shrink by 4 percent and 6.5 percent respectively, compared with the harshest estimates of a 11 percent contraction by both Credit Suisse and CLSA Ltd (里昂證券).


Citi Taiwan yesterday estimated that private investment would see 4.5 percent year-on-year growth next year after declining by 15.9 percent this year.

The nation’s unemployment rate would rise to 5.7 percent this year while the inflation consumer price index would ease to zero, suggesting a relatively lower risk of deflation this year, Cheng said.

The chief economist yesterday refused to comment on the New Taiwan dollar’s future.

But Calyon, the corporate and investment banking arm of the Credit Agricole group, yesterday forecast that the local currency would likely further decline to NT$35.5 against the US dollar before June, Sebastien Barbe, currency strategist with Calyon in Hong Kong, told a European Chamber of Commerce in Taipei gathering yesterday.


The NT dollar will stay soft in the first half of the year because of deteriorating current account balances, triggered by the export slump, persisting capital outflows and lower interest rates, he said.

The NT dollar yesterday gained NT$0.05 to close at NT$34.747 against the greenback on turnover of US$627 million.

Calyon said the local currency would recover to the NT$32 level next year when measures with China kick in, providing an economic boost to Taiwan and the global economy stabilizes.

Economically, Barbe yesterday said Taiwan would pay a price for its strong reliance on exports this year, forecasting a 6 percent drop in GDP this year.

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