Economic worries behind stock market drop: CEPD

CAUTIOUS::CEPD Minister Christina Liu voiced concern that global uncertainties could affect emerging markets, putting Taiwan’s forecast economic growth of 5% at risk

By Amy Su  /  Staff Reporter

Fri, Aug 12, 2011 - Page 11

Council for Economic Planning and Development Minister Christina Liu (劉憶如) yesterday said the US and European stock markets’ plunge on Wednesday was indicative of concerns over the global economic outlook, including Taiwan’s.

“The one-day rally on Wall Street provided more evidence of the public’s lack of confidence in the economy,” Liu told a press conference after Taiwan’s stock market closed, with the index narrowing losses after initially plunging by 4.6 percent.

The TAIEX closed down 17.23 points, or 0.22 percent, at 7,719.09.

Liu said on Wednesday that the US Federal Reserve could launch another round of quantitative easing measures if its low interest rates proved ineffective.

These uncertainties made Liu more cautious about the economy in emerging markets, including Taiwan.

“We have to pay closer attention and take a longer time to confirm if Taiwan’s GDP growth could reach the 5 percent level,” Liu said.

FORECAST UPDATE

The latest forecast on full-year economic growth by the government was 5.01 percent. The Directorate-General of Accounting, Budget and Statistics (DGBAS) is scheduled to update its economic growth estimate on Thursday next week.

In addition, the economic uncertainties in the US and Europe would likely create another challenge for emerging markets, disturbing Asian policymakers’ exit strategies from their own economic stimulus measures, Liu said.

“Emerging Asian countries may slow the pace of their exit strategies, given that they have gradually taken monetary belt-tightening measures for about two years,” she said.

Cheng Cheng-mount (鄭貞茂), chief economist of Citigroup in Taipei, said that increasing global downside risks and slowing inflationary pressure in coming months might spur more major central banks to adopt a more accommodative monetary policy.

Cheng expects the central bank to hold off on any more rate hikes this year, after raising policy rates five times since June last year.

“However, the monetary tightening cycle is not yet over,” Cheng said in a research report issued on Wednesday, adding that the central bank could resume its rate hikes once the risk switches back to concern over inflation.

RESILIENT

Taiwan’s economic fundamentals should remain solid in the second half, because recent economic data released last month showed that the economy was still resilient — before the recent financial market jitters, Cheng said.

Citigroup’s latest research forecast a 4 percent to 4.25 percent growth rate for the economy in the second half of the year, barring a double-dip scenario, Cheng said.