Mon, Aug 22, 2011 - Page 12 News List

Banks downgrade growth forecast

UNDER PRESSURE:The TAIEX has fallen 15.05% this month and 18.16% for the year, the worst of the major Asian bourses, which is likely to impact private consumption

By Crystal Hsu  /  Staff Reporter

Two more foreign banking institutions cut their GDP growth estimate for Taiwan this year as weaker external demand could prove a greater-than-expected drag on the nation’s export-oriented economy amid the ongoing turbulence in the global equity markets.

British banking group Barclays Capital cut its GDP growth forecast for Taiwan from 6 percent to 5 percent for this year, while Australian peer ANZ trimmed its projection from 5.3 percent to 4.95 percent, both citing slower exports as the global economy deteriorates.

The revisions came after the Directorate General of Budget, Accounting and Statistics on Thursday lowered its own projected economic growth from 5.01 percent to 4.81 percent, with fears over a global downturn looming large.

“Weaker external demand is now seen as a bigger drag on headline GDP growth than before,” Barclay Capital said in a report explaining its downward revision of Taiwan’s economy.

It now expects Taiwanese manufacturers to see only mild growth on account of the soft patch in external demand and weak pricing environment, both unfavorable for consumer electronics.

Private consumption, which increased GDP by 1.66 percentage points, is also forecast to moderate this quarter as a result of the negative wealth effect.

“The steep drop in the TAIEX is likely to have an impact on [people’s] discretionary spending,” Barclay Capital said.

The main index tumbled 15.05 percent this month and has fallen 18.16 percent this year, according to JPMorgan Asset Management Taiwan, making Taipei the worst performer among major Asian bourses.

South Korea saw its index fall 14.93 percent so far this year, while Hong Kong and Singapore dropped 15.78 percent and 14.31 percent respectively, JPMorgan said in a statement on Friday.

Despite the projected GDP slowdown, the central bank would still probably press ahead with micro-monetary tightening, hiking key interest rates by another 12.5 basis points next month, Barclay Capital said.

However, ANZ said that the current level of uncertainty warranted a change in policy.

“Our current call is for the central bank to hold its policy rate in its September meeting,” ANZ senior economist on Greater China Raymond Yeung (楊宇霆) said in a report.

The risks of a global double-dip recession have increased while inflationary pressures have subdued, making room for the central bank to pause monetary tightening, Yeung said.

ANZ revised downward its annual growth forecast for consumer prices in Taiwan to 1.48 percent this year, from its previous estimate of 2.3 percent, on receding oil prices and consumer confidence.

“Consumer sentiment will be hurt by growing concerns over the global economy,” the economist said. “The trade outlook will also moderate although robust demand from China will continue to provide support.”

Taiwan will further benefit from warming trade ties with China on the back of the Economic Cooperation Framework Agreement (ECFA) and liberalization of cross-strait tourism, Yeung said.

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