Taiwan’s economy is expected to improve in the third quarter on the back of robust investment and private consumption, while the central bank is likely to keep interest rates unchanged by the end of this year, Cathay Financial Holding Co (國泰金控) said yesterday.
The economy is likely to bottom out this quarter, instead of in the first quarter previously predicted by the team, as exports were weaker than expected, said Hsu Chih-chiang (徐之強), an economics professor at National Central University who heads a research team commissioned by Cathay Financial.
“While we previously expected a decline in exports to taper in the second quarter, US President Donald Trump’s tweets last month and his lifting of tariffs from 10 to 25 percent have weakened global trade, including in Taiwan,” Hsu told a news conference in Taipei.
Exports have contracted year-on-year for seven consecutive months through last month, as an increase in exports to the US could not offset a shipment decrease to China, Hsu said.
The Directorate-General of Budget, Accounting and Statistics (DGBAS) has forecast that exports would drop 1.17 percent annually this year.
Reporting a pessimistic export outlook, the research team forecast that annual GDP growth for the second quarter would be about 1.7 percent, slightly down from 1.78 percent the previous quarter, Hsu said.
However, the economy is expected to recover in the third and fourth quarters to record 2.5 percent growth, supported by rising investment, steadily growing private consumption and stable public policies, he said.
An investment totaling NT$375 billion (US$11.96 billion) by 73 Taiwanese companies that have gained approval to return home would be a pillar of economic growth, Hsu said.
Domestic investment this year would advance 3.67 percent year-on-year, lower than the DGBAS’ forecast of 5.39 percent, Hsu added.
“Not all applicants will implement their investment plans in Taiwan this year, even though they have gained government approvals, as their decisions might be delayed by uncertainty derived from the trade dispute,” Hsu said.
With the presidential election approaching, the government is expected to keep policies stable, which would help the economy, he said.
The central bank is expected to keep its policy rates unchanged today and for the second half of this year, but the possibility of a rate cut would rise if the economy continues to slow in the following quarters and if the bank predicts that the US and China cannot resolve their disputes, Hsu said.
Cathay Financial retained its 2.2 percent GDP growth forecast for the year, he added.
Hsu’s team in March successfully forecast that GDP growth for the first quarter would decline from the previous quarter.
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