Tue, Sep 04, 2012 - Page 13 News List

Cathay slashes GDP forecast to 1.47%

CURRENCY TOOL:The central bank can take steps to allow the NT dollar to weaken to keep Taiwanese exports competitive vis a vis rivals like South Korea, an expert says

By Crystal Hsu  /  Staff reporter

Cathay Financial Holding Co (國泰金控) yesterday cut its GDP growth forecast for Taiwan this year to 1.47 percent, from the 2.45 percent it estimated in June, amid sluggish exports and called for a weaker currency to induce a recovery.

“The government should work to keep GDP growth above 1 percent after saying that a 2 percent expansion looks impossible,” said National Central University economics professor Hsu Chih-chiang (徐之強), who co-headed the research with the nation’s largest financial services provider.

Hsu attributed the downward adjustment to an overoptimistic estimate for the nation’s first-half economic performance, increasingly fragile consumer confidence and a deeper-than-expected slowdown in China.

Cathay Financial still expects the second half of the year to fare better than the first half, but the recovery would be slow and modest, Hsu said.

The economy is likely to grow 1.06 percent in the current quarter and pick up 1.38 percent in the final quarter, compared with the same period last year, Hsu said.

“The good news is that the nation’s export-oriented economy remains on a slow recovery track after hitting bottom in the first quarter, judging from the sequential quarterly showing,” he said.

However, downside risks remain because of Europe’s lingering debt problem and private consumption shows signs of weakening, Hsu said.

Private consumption increased more than 6.6 percent over the past two years, but grew only 2.85 percent as of July this year, the academic said.

The central bank could help boost exports by depreciating the New Taiwan dollar against the greenback, Hsu said.

“The central bank can take steps to weaken the NT dollar to make Taiwanese exports more competitive on the world stage as long as doing so would not expose the local currency to excessive volatility,” Hsu said.

The local currency has been trading around NT$29 to NT$30 this year versus its US counterpart, which is relatively strong compared with NT$35 against the US dollar at the height of the global financial crisis in 2008, the economist said.

“Central bank Governor Perng Fai-nan (彭淮南) reportedly urged the Cabinet to help support [smartphone maker] HTC Corp (宏達電) earlier, if it meant boosting exports,” Hsu said. “Well, the monetary policymaker can give a lending hand by lowering the NT dollar. The move is desirous and practical as major trade rival South Korea weakens its currency.”

The central bank could avert imported inflation linked to a weak NT dollar by lowering interest rates as it did during the 2008 crisis to support economic growth, Hsu said.

Consumer prices are likely to have climbed near the 3 percent mark last month due to disruptions in food supplies, but that should not be a cause for concern as inflationary pressure will dissipate once the typhoon season is over, he said.

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