Taiwan’s export-focused economy will struggle to stay in expansion mode for the rest of the year as rapidly deteriorating external downside risks shake confidence, Cathay Financial Holding Co (國泰金控) said yesterday.
The nation’s largest financial service provider by assets cut its GDP growth forecast for Taiwan this year to 4.95 percent, from 6.28 percent forecast in June, and would not exclude further downward revisions if the global economy proved worse than expected.
“We don’t spot signs of recession at home or abroad,” National Central University economics professor Hsu Chih-chiang (徐之強) said as he delivered the findings at a press conference.
However, the chance of recession is on the rise and the situation changes so fast that it is better to refrain from speculation on the economic outlook next year, Hsu said.
Based on Cathay Financial’s latest estimate, GDP would expand a modest sequential 0.33 percent this quarter and 1.15 percent next quarter, based on a seasonally adjusted quarterly rate (SAQR).
The government’s statistics agency predicted last month GDP would decline 0.16 percent on a SAQR basis this quarter from the second quarter and grow 1.57 percent in the fourth quarter on expectation of strong external demand.
Quarterly comparisons better capture cyclical movements when the economy is shifting gears, Hsu said.
Cathay Financial expects domestic demand to make up 43 percent of GDP this year, twice as high as the 20 percent contribution estimated by the Directorate-General of Budget, Accounting & Statistics (DGBAS).
“The biggest difference lies in private investment, which we -believe will continue to drive growth as in the first half,” Hsu said.
The DGBAS forecast private investment would contract 9.91 percent this quarter and 6.76 percent next quarter on a yearly basis, after expanding 11.4 percent and 5.66 percent in the first quarter and second quarter from their year-ago levels respectively.
Cathay Financial deemed the projected declines unlikely, Hsu said, adding the second half is considered the high season for technology firms.
The DGBAS expects expenditures by national enterprises to contract 4.51 percent and 14.03 percent year-on-year in the third and fourth quarters.
Government expenditure is also forecast to fall 4.42 percent next quarter and drop an average of 1.72 percent over the entire year, DGBAS data showed.
“I don’t think there is room for the government to strengthen infrastructure facilities anymore,” Hsu said.
Cathay Financial’s GDP growth forecast is higher than the government’s estimate of a 4.81 percent expansion this year.
Downside risks to Cathay Financial’s forecast include economic downturns in the US and Europe, Hsu said.
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