The government still has room to ease monetary and fiscal policies to stimulate economic growth as Taiwanese exports are likely to stall through this quarter amid a deepening global trade slump, HSBC PLC said in a report yesterday.
The report came after Premier Sean Chen (陳冲) on Tuesday unveiled a stimulus package to boost the nation’s GDP growth by 1 percent to 1.6 percent, without sacrificing the nation’s fiscal health. Chen said the Cabinet would release an action plan by the end of this month.
“From both a monetary and fiscal perspective, we believe there’s room to wriggle,” Donna Kwok (郭浩莊), the British banking group’s Greater China economist, said in the report.
It looks like the government is finally moving to protect businesses and the work force after seven months of studies, though the intensity would not be as strong as 2008’s shopping voucher program, Kwok said.
Most of the proposals in the stimulus package also overlap with initiatives already publicized in recent months, she said.
While Taiwan’s budget deficit has worsened since the onset of the global financial crisis in 2007, it remains at a sustainable level of about 40 percent of GDP, according to IMF standards, Kwok said.
Taiwan is in better fiscal health than in the late 1990s and when compared with regional peers such as Malaysia or Thailand, she said.
On the monetary front, the benchmark rediscount rate, currently at 1.875 percent, is off a record low of 1.5 percent, so there is room for a rate cut, she said.
“It is too early to assess the chances of the package’s success due to scant details,” Kwok said.
The government does not plan to widen the fiscal deficit to finance the stimulus package. Instead, it plans to tap alternative sources of financing, such as boosting its foreign investment target to NT$335 billion next year and NT$440 billion in 2014, while raising investment from Taiwan businesspeople overseas to NT$500 billion and domestic private investment to NT$1 trillion, the Cabinet said.
The measured move is a signal that the government will continue efforts to keep the budget deficit under control and use the current global downturn as an opportunity to revive Taiwan’s competitiveness in the global arena, Kwok said.
However, HSBC stood by its forecast last month that the Taiwanese economy would grow 1.3 percent this year with risks tilted to the downside.
“The worst is yet to come as new orders from the US, [the] eurozone and China have all contracted since June, meaning demand for Taiwan’s shipments is to shrink at least through September,” Kwok said, citing the group’s purchasing managers’ index readings.
The central bank will likely keep interest rates unchanged next week on concerns over inflation and property price pressures, she said.