Several major foreign brokerage houses cut their forecast for Taiwan’s GDP growth this year to below 2 percent, following the government’s announcement on Tuesday that the economy contracted in the second quarter — the first in nearly three years.
Credit Suisse — whose revised GDP growth forecast was the lowest among the foreign brokers — further expected the central bank to cut the rediscount rate at least once, by 12.5 basis points, in the second half of the year.
On Tuesday, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said that second-quarter GDP shrank by 0.16 percent from a year earlier, the first contraction since the third quarter of 2009.
This, plus the lack of visible signs of improvement in the global economy, led Credit Suisse to cut its full-year GDP growth forecast to 1 percent yesterday, from the 2.4 percent it estimated before.
The brokerage house added that it expected the central bank to cut its policy rates to provide some breathing room for the economy.
“We believe that the effect of the cut on growth is doubtful, but we think the central bank may still consider doing so given the difficult economic condition,” Credit Suisse research analyst Christiaan Tuntono said in a statement.
Barclays Capital shared Credit Suisse’s view in a research note released yesterday.
“We believe the likelihood of a rate cut at the central bank’s board meeting in September has risen significantly,” said Leong Wai Ho (梁偉豪), a Singapore-based economist at Barclays Capital.
Leong also expected the central bank to move faster to nudge the overnight interbank rate below 0.4 percent in the coming weeks.
Barclays Capital cut its GDP growth forecast for Taiwan this year to 1.7 percent, from the 3 percent it previously estimated.
However, Bank of America Merrill Lynch said the central bank might keep its policy rates unchanged in the second half, as the current rediscount rate in Taiwan, at 1.875 percent, is already low and any further cut would not significantly boost the economy.
Merrill Lynch downgraded its GDP growth forecast from 2.4 percent to 1.4 percent in its latest report on Tuesday, the second downward revision within a month.
Morgan Stanley has also trimmed its growth forecast for the full year to 1.7 percent, from its prior estimate of 3.1 percent, citing a weaker-than-expected first half and very likely mild and slow recovery in the second half.
The broker does not expect any rate change in the second half, saying a cut would drive policy rates lower than headline inflation, leading to negative real interest rates.
Unlike its peers, Australia and New Zealand Banking Group Ltd (ANZ) maintained a relatively optimistic view of the Taiwanese economy.
ANZ said in its latest research report that Taiwan’s GDP would grow 2.97 percent this year, adding that the economy in the second half would gradually rebound on the back of better economic sentiment in China, the nation’s major market for exports.