Global bourses are likely to see volatility continue due to reviving worries over European debt problems, with investor focus shifting from Greece to Spain and Italy, Mitul Kotecha, a Hong Kong-based economist at Credit Agricole SA, said yesterday.
“The European debt worries are returning, as evidenced in recent corrections across global equities markets after Spain’s government bond yields rose above the alarming 6 percent level,” Kotecha said in a speech to the European Chamber of Commerce in Taipei.
The liquidity-driven market rallies for risky assets in the first quarter are unlikely to be sustained in the near future with risk appetite already waning, he said, adding that investors have gained better knowledge of the reality of slow recovery of the US economy and renewed debt worries in the eurozone economies.
Constraints on US consumer spending will remain in place given the slow reduction in unemployment while household and business spending will also be curtailed by expectations of major fiscal restraints due to automatic deficit cuts that will come into effect, Kotecha said.
Austerity measures in Europe will lead to a sharp slowing in growth and while officials have taken steps in the right directions, markets will be placated quickly, Kotecha said.
Against this backdrop, Kotecha said he expected the US dollar to fare well against the euro, yen and Swiss franc, but come under pressure against currencies in emerging markets.
STRONGER NT DOLLAR
The New Taiwan dollar is likely to strengthen between 2 percent and 3 percent against the greenback this year to trade at NT$29.2 by the end of this year, Kotecha said.
By the end of next year, the NT dollar may trade at NT$28.5 against its US counterpart, he added.
Credit Agricole, one of France’s largest banks, expects Taiwan’s GDP to increase 3.4 percent this year and 5 percent next year.
On Wednesday, the IMF forecast in its latest World Economic Outlook that Taiwan’s economy is expected to grow 3.6 percent this year and 4.7 percent next year, amid impacts of the ongoing European debt crisis and geopolitical tensions in the Middle East.
“Lingering risk factors, including the ongoing problems in Europe, would likely still rank high in the Taiwan central bank’s policy rate consideration at the June monetary policy meeting,” Grace Ng (吳向紅), a Hong Kong-based economist at JPMorgan Chase Bank, said in a report yesterday.
However, Ng said the central bank’s near-term policy concerns seemed to have shifted focus from the economic growth front to managing inflation, following the government’s recent decision to hike domestic fuel and electricity prices.
JPMorgan said its baseline scenario was that the central bank would keep its policy rates on hold for the rest of this year, although an earlier rate move, possibly by the fourth quarter this year, could not be ruled out, according to the report.