Tue, Dec 06, 2011 - Page 12 News List

Citibank lowers GDP growth forecast to 4 percent

SUPPORT:An economist said exports will contribute less to the nation’s economy next year, while domestic demand will pick up some of the slack amid a stable labor market

By Crystal Hsu  /  Staff Reporter

Citibank trimmed its GDP growth forecast for Taiwan next year to 4 percent from 4.6 percent in its previous estimate as Europe looks set to slip into recession, hurting the nation’s exports, Taipei-based chief economist Cheng Cheng-mount (鄭貞茂) said yesterday.

Europe’s worsening sovereign-debt crisis drove the US banking giant to cut its global growth forecast for the sixth consecutive month to 2.5 percent next year, with China predicted to contribute 34 percent, Citibank’s report said.

“Taiwan will likely face more headwinds in 2012, with GDP growth slowing to 4 percent on weakening exports,” Cheng told a news conference.

That is slightly lower than the government’s 4.19 percent growth forecast last month, but higher than Morgan Stanley’s projection of 3.1 percent last week.

Exports, the main driver of Taiwan’s economy, will remain important, but their contribution will decline next year, Cheng said.

External and domestic demands are likely to carry equal weight next year, Cheng said, attributing the latter’s rise to the stable labor market and positive consumer sentiment.

“The practice of unpaid leave appears limited this time compared with the global downturn in 2009 when export orders suddenly dried up in January,” he said.

Christmas sales in the US have proved stronger than expected thus far, boding well for inventory building later, he said, adding that domestic manufacturers have lowered inventory levels over the past few months in response to the global slowdown.

Citibank expects the global technology industry to manage moderate growth of between 3 percent and 5 percent. driven by demand for new tech applications.

“Electronic products — such as tablets, thin laptops and handsets — are no longer deemed luxury items, but as daily necessities,” Cheng said. “Taiwan will benefit from that trend.”

Meanwhile, non-tech sectors, such as chemicals, plastics, basic metals and machinery makers, are gaining importance following the signing of the Economic Cooperation Framework Agreement with China last year, Cheng said.

There will likely be no star industry in Taiwan as the government seeks to restructure some sectors and underscore domestic demand, he said.

The adjustment is making Taiwan more dependent on China, whose GDP is expected to see a soft landing and expand 8.4 percent next year, the report said.

Such an increasing dependence will subject Taiwan to greater downside risks once China shows signs of a slowdown, the report said.

Citibank expects the unemployment rate to stay virtually unchanged at 4.3 percent next year, from 4.4 percent this year, the report said.

The central bank may keep the policy rate steady at the current 1.875 percent until the middle of 2013 to help stimulate economic growth as its peers across the world do the same, Cheng said.

Risk aversion will shore up the US currency against major counterparts next year, but the pickup will be limited, he said.

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