Two foreign banks have cut their GDP growth forecasts for Taiwan after saying that the nation’s exports could fail to improve this quarter.
Deutsche Bank AG has lowered its economic growth projection from 3.2 percent to 2.7 percent, while DBS Bank dropped its estimate from 3.3 percent to 2.6 percent, citing delayed recovery in external demand to buoy the economy.
“Rebound in exports this quarter is insufficient to bring about a meaningful recovery in GDP growth, which we now expect to take place in the second half,” Deutsche Bank’s Hong Kong-based economist Juliana Lee said in a report.
The government’s latest data showed exports picked up by 0.9 percent year-on-year last month, following a 1.9 percent contraction in April.
Imports contracted 8 percent year-on-year last month, compared with a decline of 8.2 percent in April, as companies turned more cautious about capacity expansions.
Retail sales also declined 0.9 percent last month from a year ago, data showed.
The weakness in domestic demand and tentative signs of a recovery in exports points to sluggish GDP growth in the current quarter, warranting a downward revision for the whole year, Lee said.
However, government subsidies are likely to support a recovery in private consumption of durable goods, and a stronger rebound in exports could emerge in the second half to guide facility investment higher, she said.
DBS Bank also said the outlook for exports is challenging.
“Chances are increasing that a significant recovery in Taiwan’s exports will be delayed,” its Singapore-based economist Ma Tieying (馬鐵英) said in a report, noting that China shows no hurry to boost short-term growth momentum, Europe has slipped into recession and the US recovery remains fragile.
There are no concrete signs of an export recovery in the coming one to three months based on the latest export order data, Ma said.
Against this backdrop, the central bank is likely to keep the benchmark interest rate at 1.875 percent for the rest of this year to support economic growth, Ma said.