Wed, Sep 21, 2016 - Page 12 News List

Cathay keeps GDP forecast at 0.8%

WORRIED:A lack of consumer confidence, caused by cross-strait uncertainty, pension reform and labor disputes, is weighing down on consumption, an economist said

By Crystal Hsu  /  Staff reporter

Despite an uptick in external demand, Cathay Financial Holding Co (國泰金控) yesterday retained its economic growth forecast of 0.8 percent for this year, saying private consumption might disappoint due to strained cross-strait relations.

The nation’s largest financial service provider said that its GDP forecast update factored in a slow, but stable recovery in exports, but the pickup might not be strong enough to make up for a deterioration in domestic demand.

“The slight improvement in exports might not offset the impact of dwindling Chinese tourists on local hotels, restaurants, bus companies and gift shops,” National Central University economics professor Hsu Chih-chiang (徐之強), who led the research team, told reporters.

Exports could continue to recover mildly for the rest of the year, but companies remain conservative about capital spending and consumers are wary of purchasing big ticket items, Hsu said, citing data from different research bodies.

The economist attributed the lack of consumer confidence to cross-strait policy uncertainty, ongoing pension reform and frequent labor disputes — all of which weigh on private consumption.

Companies across sectors have complained about a profitability squeeze, as workers’ unions press for the retention of seven national holidays and better overtime compensation. Civil servants and public-school teachers are worried about diluted pension payment, as the government proposes reforms to keep the program afloat.

The cautious sentiment might linger as policy discussions pan out, Hsu said.

The Cathay research team was not surprised at the slight GDP growth last quarter, as it had forecast a 0.22 percent increase for the April-to-June period, higher than the government estimate of a 0.06 percent uptick for the same period, Hsu said.

The growth momentum might be sustainable through the second half of the year and pick up modestly to lift GDP growth to 1.2 percent next year, he said.

The global economy could continue to stall next year, but the US might outperform, posting growth of 2.7 percent from an estimated 1.5 percent for this year, Hsu said.

China, which accounts for more than 40 percent of Taiwan’s exports, could see growth slow to 6.5 percent next year, from 6.7 percent this year, the economist said.

“As the slowdown in China persists, the US will take on the role of growth driver for the world and Taiwan,” Hsu said.

As Taiwan stays on the course of recovery, the central bank might halt interest rate cuts later this month when it convenes its quarterly policy meeting, Hsu said.

The local monetary policymaker might take cues from the US Federal Reserve when weighing policy rates, he said.

The Fed is to unveil its latest policy decisions on Thursday Taiwan time.

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