Several major think tanks in Taiwan are expected to revise down their forecast for annual GDP growth this week, following Academia Sinica’s cut of its growth forecast for this year to 1.94 percent on Wednesday last week.
The weaker-than-expected economic momentum in the second quarter, caused by continuous global economic uncertainties, would be the major factor dragging down these institutes’ latest forecast, economists said.
“It is difficult for the nation’s economy to grow more than 3 percent this year,” director of the Chung-Hua Institution for Economic Research’s (CIER, 中華經濟研究院) center for economic forecasting Liu Meng-chun (劉孟俊) said by telephone.
Liu cited weak overseas and domestic demand as exports fell 4.7 percent from a year ago in the first six months of the year, with private consumption slower in the same period due to the government’s decision to raise energy prices.
Liu’s views confirmed that the CIER — which is scheduled to update its full-year economic growth forecast today — will cut the figure from the 3.55 percent growth it estimated in April.
The Taiwan Institute of Economic Research (TIER, 台灣經濟研究院), which is set to release its latest growth forecast tomorrow, may also follow the trend, as the think tank estimated in April that economic expansion would reach 3.48 percent this year.
“Taiwan’s economic growth in the second quarter may be lower than that in the first quarter as a result of the impact of slowing domestic demand,” director of TIER’s macroeconomic forecasting center Gordon Sun (孫明德) said.
Many economists had previously thought Taiwan’s economy would bottom out in the first quarter, but it turned out that GDP in the second quarter may show a contraction because of the deteriorating domestic demand, Sun said.
Renewed worries about the nation’s economic prospects have placed speculation and discussion about the central bank possibly cutting interest rates back on the table.
The central bank on June 21 decided to keep its key interest rates unchanged for the fourth consecutive quarter and left its discount rate at 1.875 percent. The bank is expected to review its monetary policy adjustment at a board meeting in late September.
“Taiwan’s policy rate outlook is less than clear at this juncture,” Grace Ng (吳向紅), a Hong Kong-based economist at JPMorgan Chase Bank, said in a report issued on Wednesday last week.
Three months ago, there was a lot of discussion about the need for the central bank to raise policy rates, given the impact electricity and fuel price hikes had on inflation and on driving up uncertainty over the policy rate outlook, Ng said.
JPMorgan said it now views Taiwan’s near-term policy rate outlook as a close call.
“[Only] in the event that the external environment worsens further, will the probability of moderate rate cuts by the central bank rise in the coming months,” Ng said.
On the exchange rate front, it seems that policymakers have been keen to maintain a competitive currency through the economic cycles in support of the export sector, she added.
Cheng Cheng-mount (鄭貞茂), chief economist at Citigroup in Taipei, shared Ng’s views.
“The central bank still has many other tools and open-market operations, such as cutting the overnight interbank call-loan rate, to deal with the current economic situation in Taiwan,” Cheng said by telephone.