Yuanta-Polaris Research Institute (元大寶華研究院) yesterday forecast that the nation’s economy would grow 0.89 percent this year and expand 1.93 percent next year, while a number of long-running cyclical and structural issues continue to add uncertainties.
Global economic growth is to enter a “caretaker” phase next year as sentiment turns tentative in the hope that lingering uncertainty will diminish with the passage of time, Yuanta-Polaris chairman Liang Kuo-yuan (梁國源) told a media briefing.
Similarly, Taiwan is waiting on potential policy changes by a new government that could reverse the economic downturn after the Jan. 16 elections, he said.
“It would take a savior of a new president to remedy structural factors and I have not seen promising policies proposed by candidates yet,” Liang said.
Lagging investment, consumption and exports are to continue to constrain economic growth next year, and the slight improvements expected would not be as meaningful in light of the low base set this year, Liang said.
The Taipei-based institute expects exports to contract by 0.24 percent this year from last year.
This is worse than the institute’s previous forecast in September, when it said exports would grow 0.31 percent this year.
Structural factors include a high level of reliance on the technology sector, the institute said, hinting that Taiwanese companies have yet to establish a notable presence in the most lucrative segments of content and applications.
Other structural factors include South Korean free-trade agreements with China and the rise of China’s “red supply chain,” he said.
He also listed slowing economic growth in China and elsewhere in Asia, falling demand for semiconductor products and a persistent slump in commodity prices among cyclical factors affecting Taiwan.
In particular, Liang said that a spike in volatility in Chinese stocks and the yuan foreign-exchange rate from May through September sent emerging markets to the brink of a financial crisis, as central banks seemed geared toward initiating another round of competitive currency devaluations.
Beijing must step up its efforts to ensure that its implied guarantees in the face of default risks in corporate loans and bad debts with banks to avert a financial crisis, Liang said.
Liang said he expects the US Federal Reserve’s rate hike to have a negative effect on global equities markets, as the move would disrupt businesses’ ability to prop up share prices by exploiting low-cost financing.
The situation is amplified in developing markets, which are facing elevated financing costs in the form of higher bond yields amid rising credit risk, he said.
The US central bank last week raised its policy rate by 25 basis points, its first hike in nearly a decade, and said in a statement after a two-day US Federal Open Market Committee meeting that subsequent rate hikes would be “gradual.”
In addition, tightened regulatory measures around the world have significantly reduced the number of institutional market makers, which could lead to market routs exacerbated by panicked redemption of highly leveraged fund products by retail investors, Liang said.
This will lead to further destabilization of global equities markets, as fund managers would be compelled to sell stocks, he said.
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