Wed, Dec 23, 2015 - Page 13 News List

Cathay trims 2016 GDP growth to 2.1%

CHINESE SHADOW:Interest rates are expected to remain low and the New Taiwan dollar weak as China’s influence on the local economy grows, an economist said

By Ted Chen  /  Staff reporter

Cathay Financial Holding Co (國泰金控) yesterday cut its GDP growth forecast for Taiwan from 2.4 percent to 2.1 percent for next year, amid concern over a continued slowdown in China.

“China remains the largest source of uncertainty for Taiwan and its influence has surpassed the US and the eurozone,” said National Central University (國立中央大學) economics professor Hsu Chih-chiang (徐之強), one of the leaders of the Cathay Financial research team.

China-related growth or policy shocks are the primary contributing factor to emerging markets, followed by capital flows or a broader balance of payments deterioration, US policy uncertainty and fallout from geopolitical risks, Hsu said, citing a study by State Street Global Markets.

Despite the US Federal Reserve’s decision to raise policy rates gradually and at small increments, Hsu retains a positive outlook on the change.

Local interest rates are expected to remain low, while the New Taiwan dollar is likely to remain weak in response to continued interest rate cuts by the Chinese central bank, as the link between the two economies deepens.

As a result, following the Taiwanese central bank’s two rate cuts this year, it is likely to slash its policy rates by another half a basis point next year in the face of low inflationary pressure, Hsu said.

“While the central bank’s rate cuts might not bring tangible growth to the real economy, it is a short-term measure that will stem further declines,” he said.

Hsu is not expecting major long-term policies to be enacted before the end of the first half of next year, while a caretaker government remains in power.

The current economic cycle likely hit the trough either in the third or fourth quarter this year, with the length of the contraction likely extending to 15 months this time compared with an average of 11 months in previous cycles, Hsu said.

Growth prospects are expected to remain gloomy until the first quarter next year, dragged down by diminished private consumption due to a listless job market, he said.

Next’s year’s tepid expansion would be backed by an anticipated 4.37 percent increase in exports. Export growth this year is projected to come in at just under 1 percent, the company said.

Cathay Financial chief investment officer Sophia Cheng (程淑芬) urged investors to take note of widening volatility next year, and advised against betting on currencies.

For this quarter, the company said the economy is poised to shake off a weakness that has persisted in the second and third quarters, and expand by 0.43 percent.

That would bring full-year economic growth to 1.02 percent, Cathay Financial said, down from its previous forecast of 1.07 percent.

This story has been viewed 1875 times.

Comments will be moderated. Keep comments relevant to the article. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned. Final decision will be at the discretion of the Taipei Times.

TOP top