Citibank Taiwan yesterday raised its forecast for economic growth for this year to 4.9 percent, thanks to a lower-than-expected impact from Japan’s earthquake and tsunami disaster and the resulting power outages, as well as strong momentum from the opening of Taiwan to independent Chinese tourists.
The lender’s latest forecast was 0.4 percentage points higher than the 4.5 percent forecast made in March, data showed.
“The nation’s economic expansion will remain stable and healthy in the second half of the year, because external uncertainties — the US and eurozone debt crisis — will have only a limited impact on the local economy,” Citibank Taiwan chief economist Cheng Cheng-mount (鄭貞茂) told a press conference.
The bank expects Taiwan’s GDP to grow between 4.5 percent and 5 percent in the second half of the year, Cheng said.
Although Citibank Taiwan retained its forecast that second-quarter expansion would reach a yearly low of 4.2 percent, Cheng said the Japan disaster had not hurt Taiwan’s economy significantly.
The beginning of the free independent travelers (FIT) program for Chinese tourists will boost Taiwan’s economy in the second half of the year, Cheng said, adding that this might boost growth by 0.07 percentage points per year.
“The program may add US$318 million to Taiwan’s consumer sector a year, according to our model — 500 visitors daily, with each person staying in Taiwan for seven days and spending US$250 a day,” he said.
Cheng said the investment sector might grow only 1.4 percent from a year earlier because of last year’s higher comparison base, but would return to higher growth in the next two years, based on the pace of the normal investment cycle.
As for policy rates, Citibank Taiwan expects the central bank to strike a balance between supporting the economy and containing inflationary pressures by raising interest rates by 12.5 basis points, or 0.125 percentage points, each quarter until the end of next year.
However, the central bank may choose not to increase the rates in one or two quarters next year if the economy grows less than expected and growth drops below 4 percent, Cheng said.
“Even if the central bank holds the rates one or two times next year, the rate-hiking cycle will continue as the global economic recovers,” he said.
Citibank Taiwan expects GDP to grow 5 percent next year, with headline inflation surging 2 percent, data showed.
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