Two more foreign banking institutions trimmed their forecasts for Taiwan’s GDP growth for this year and next, as a deteriorating eurozone debt crisis dims the global economic outlook and hurts private investment and consumption.
Both Citigroup and Societe Generale expect the economy to rise by more than 4 percent this year, but differ sharply on the performance for next year, with Citigroup forecasting 4.6 percent GDP growth, while Societe Generale predicted just 1.6 percent growth.
“We expect the eurozone to slip into recession in the coming quarters,” Citibank Taiwan chief economist Cheng Cheng-mount (鄭貞茂) told a media briefing yesterday.
The US banking giant revised downward its GDP growth forecast for Taiwan from 4.9 percent to 4.8 percent for this year.
Worsening external conditions have taken a toll on exports, which declined 7.9 percent in August from July, Cheng said, adding the downtrend was likely to continue in the coming months.
Domestic demand has been resilient so far, but may not hold up as major technology companies have cut forecast capital expenditure amid weak sales, Cheng said.
Gross fixed capital is expected to contract 1.5 percent this year from last year and expand a modest 1 percent next year, the Citigroup report showed.
Taiwan, however, may take some comfort in its trade ties with China, which is forecast to drive 30 percent of global GDP next year, from an estimated 28 percent this year, the report said.
Non-technology firms in basic metal, machinery equipment and chemical sectors could gain more importance following the signing of the Economic Cooperation Framework Agreement (ECFA) in June last year, Cheng said.
“Consequently, we maintain a positive view about Taiwan’s economic prospects in the long run despite the downward revisions,” Cheng said.
The French banking group Societe Generale was less optimistic, saying Taiwan was still an export-oriented economy despite efforts to restructure.
“Although the global slowdown will not be on the same scale as during the global financial crisis, it will severely undermine Taiwan’s exports and upset the fragile domestic recovery,” Societe Generale said in a report after slicing its GDP growth forecast for Taiwan to 4.3 percent this year.
Exports are predicted to grow 5 percent this year and 2.7 percent next year, Societe Generale said. Both figures are milder than estimates by Citi at 6.1 percent this year and 6.4 percent next year.
Societe Generale painted a gray picture for next year, with the economy rising a mere 1.6 percent as weakening exports weigh on the labor market and consumer spending.
The central bank may step in and cut discount rates to 1.375 percent next year after keeping it steady at 1.875 percent for the rest of this year, the French bank said.
Citigroup did not rule out a potential monetary easing, but said the central bank was more likely to maintain the status quo.
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