Foreign financial institutions differ in their forecasts of Taiwan’s GDP growth this year, but share the view that oil prices poses the biggest downside risk and might lead to a reversal in monetary policy if inflationary pressures keep escalating.
UBS, the biggest bank in Switzerland, stands by its dim view published in December last year that Taiwan’s economy might expand only 1.5 percent this year, despite the government’s efforts to cut dependence on exports, the banking group’s London-based economist Paul Donovan said.
“What you sell in China does not stay there,” but are rerouted to the US and Europe for consumption, Donovan told a media briefing in Taipei.
Europe will import less this year to rein in fiscal debts, although the chances of a collapse are smaller following the adoption of quantitative easing measures, he said.
UBS expects Europe’s GDP to contract 0.7 percent this year, with debt-ridden countries such as Greece and Spain faring worse. Donovan said weak bank lending also suggested problems for countries like France and Italy.
Net export growth for Taiwan is forecast to slow to below 2 percent this year and beyond, while domestic consumption could rise by 2.2 percent on the back of economic restructuring, he said.
The increasing emphasis on domestic consumption is helpful, but will not be significant or fast enough to help GDP grow on par with the global trend this year, he said.
ANZ, the Australian and New Zealand banking group, took a rosier view, saying the nation recovered some export growth momentum over the past two months.
“Taiwan’s economy might grow 3.56 percent this year and the chance of a 4 percent expansion is on the rise,” said Raymond Yeung (楊宇霆), a Hong Kong-based ANZ economist on Greater China.
Taiwan, home to the world’s leading contract chipmakers, might benefit from the launch of new generation handsets, tablets and light-weight laptops, Yeung said, adding that warming trade ties with China would further boost its retail and tourism revenues.
The biggest risk to the forecast is the oil price, which is reviving concerns over imported inflation amid heightening tensions in the Middle East, he said.
The US may see its GDP eroded by 0.5 percentage points and China by 0.4 percentage points if oil trades at US$150 a barrel for six months, said Liu Li-gang (劉利剛), ANZ head economist on Greater China.
“It should not be a surprise if the oil price hits US$200 a barrel or higher,” Liu said.
Taiwan’s central bank would likely resume interest rate hikes in September or earlier to contain inflationary pressures, Yeung said.
Meanwhile, Barclays shared the observation that the central bank’s focus is now on inflation, moving away from economic growth.
A stronger currency would be a good defense against imported cost-push inflationary pressures, the British banking group said.
Barclays lowered its forecast for Taiwan’s inflation rate from 1.8 percent to 1.5 percent for the whole of this year, and forecast the economy would grow 3 percent this year.
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