Cathay Financial Holding Co (國泰金控) yesterday cut its forecast for GDP growth this year to 1.7 percent from the 3.4 percent it projected in June, but said that recovery might begin in the fourth quarter, as the weakening New Taiwan dollar could boost exports.
The company’s figure is higher than the 1.56 percent forecast by the Directorate-General of Budget, Accounting and Statistics last month.
“In light of the sharp double-digit decline in exports in July and August, it would be an amazing feat for economic growth to achieve sequential growth in the third quarter, and nearly impossible for this year’s growth to reach 2 percent,” said National Central University economics professor Hsu Chih-chiang (徐之強), one of the leaders of the Cathay Financial research team.
Hsu expects GDP growth to rise to 2.4 percent next year.
Hsu said it is likely that the central bank would lean toward easing and lower interest rates, following the US Federal Reserve decision on interest rate policy, which was expected yesterday.
An increase in the federal funds rate by the Fed would lure funds from developing markets and that will cause the NT dollar to weaken, Hsu said.
However, it is also possible that following lengthy anticipation, a Fed rate hike would mark the end of uncertainty in the market and therefore cause the NT dollar to make gains, he said.
“Regardless, the central bank is likely to lower interest rates due to the low inflation rate, poor economic growth and falling overnight bank rates — a leading indicator of the nation’s money supply,” Hsu said.
Although the US and eurozone economies have begun gradual recovery, tepid growth remains a concern in China and other developing markets, while domestic sentiment over consumption, employment, investments and wage growth has slipped deeply into pessimism, Hsu said.
The only factor that justifies optimism in the economy is that enterprises have continued to increase imports of capital goods in the past three months, he said.
To prompt overseas fund flows back into Taiwan, Cathay Financial chief investment officer Sophia Cheng (程淑芬) urged the government to extend a tax amnesty similar to those seen in the US.
That would free investors of further repercussions after they pay a one-time fee, Cheng said.
She said that the measure would greatly boost the nation’s financial services and wealth management businesses.
“Enterprises must stop fixating on cutting costs and instead focus on creating wealth,” Cheng said.
“The reflow of funds would provide a larger stage to attract and cultivate top talent,” she added.
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