The global economic landscape remains rugged this year with the worst likely not over yet, although major economic bellwethers at home and abroad have shown signs of improvement, Standard Chartered Bank economists said yesterday.
“Though the sentiment has improved, it is not warranted to be overly optimistic,” Tai Hui (許長泰), the British banking group’s Singapore-based head of research on Southeast Asia, told a media briefing in Taipei.
The recent rallies in Asian bourses and currencies may reverse once reports of unfavorable developments about the US economy or the European debt problems hit the wire, Hui said.
The reduction in US unemployment, for one, is not solid, but was a result of shrinking labor participation, Hui said, adding the jobless rate would reverse back up and surge past 10 percent if the labor pool remained unchanged.
The latest US purchasing managers’ index slowed from one month earlier although it stayed above the neutral mark, Hui said.
The reading, used to gauge the health of the manufacturing industry, sheds no light on other sectors, he said.
Meanwhile, Greece may need more bailout funds and rising oil prices may stoke inflation, the economist said.
“The worst is likely not over yet as things unfold,” he said.
The external backdrop will weigh on Taiwan’s export-oriented economy, which is likely to expand 2.7 percent this year, slowing from the 4.04 percent growth last year, said Tony Phoo (符銘財), Standard Chartered’s Taipei-based economist.
With Europe’s economy faltering, Taiwan’s GDP may not grow by its full potential pace of between 4.5 percent and 5 percent, Phoo said.
The nation’s trade dependence on Europe — with exports accounting for 7 percent of GDP last year — is underestimated because it fails to factor in shipments destined to Europe from China where Taiwanese electronics products are produced, Phoo said.
“The trade linkage is deeper than the statistics suggest,” he said. “The unfavorable macro environment will dampen private investment.”
The government’s effort to strengthen tourism and other service sectors would mitigate, but not offset, the pain of slowing external demand, Phoo said.
International trade drove 56 percent of GDP growth last year, while domestic demand accounted for the remaining 44 percent, he said.
Standard Chartered does not expect a major breakthrough in cross-strait trade ties this year, although it shares the view that President Ma Ying-jeou’s (馬英九) re-election has helped boost confidence among domestic and foreign investors.
“Taiwan is not ready for a massive influx of Chinese tourists anyway,” Phoo said, referring to inadequate infrastructure facilities.
The central bank is likely to keep the benchmark discount rate steady at 1.875 percent through the end of this year, although the return of hot money amid quantitative easing in the West could push up the local currency, Phoo said.