Cathay Financial Holding Co (國泰金控) yesterday raised its forecast for GDP growth to 2.98 percent this year, from 2.93 percent forecast in December last year, on improving consumer confidence and higher exports.
The economy could expand 3 percent if the government and private firms increased investment, said Hsu Chih-chiang (徐之強), an economics professor at National Central University, who jointly headed the quarterly research with Cathay Financial.
“The recovery may gain speed from next quarter onward, though the pace is slow thus far,” Hsu told a media briefing.
Exports would be the key growth driver, lifting the GDP reading by 3.47 percentage points after expanding 4.92 percent this year from last year, Hsu said.
Volatility in emerging economies such as Ukraine and Turkey would have very limited impact on the US and Europe, the main end-markets of Taiwanese-made electronic devices, the report said.
Singaporean banking group DBS reached a similar conclusion and maintained its forecast for GDP growth at 3.3 percent this year.
“The rate is attainable, despite a likely technical slowdown in GDP growth to 1 percent this quarter,” DBS said in a report released earlier this week.
The volatility in quarterly GDP growth is high due to the heavy dependence on exports, especially electronics, making the economy sensitive to the global trade cycle, DBS said.
Exports increased 0.4 percent in the first two months from the same period last year, slowing from an average 1.8 percent expansion last quarter, disrupted in part by Lunar New Year holiday, government data showed.
The outlook for exports holds the key to GDP growth in the coming quarters, with economic barometers in the US and China staying in expansion mode, although they are weaker than expected, Cathay Financial and DBS said.
The US semiconductor book-to-bill ratio remains above the par level of one, boding well for Taiwan, which houses the world’s largest contract chipmakers, as well testing and packaging firms.
Overall consumer confidence has increased in the past six months, although interest in purchases of durable goods and big-ticket items declined slightly.
The trend is positive for domestic demand, which may benefit from rebounding exports and higher stock turnover going forward, Hsu said.
The Financial Supervisory Commission is mulling more stimulus measures to invigorate the local bourse. The TAIEX may approach 9,000 points in the second half of the year as investors recover their appetite for risk, Hsu said.
The central bank will probably keep interest rates unchanged at 1.875 percent during its quarterly board meeting next week, as conditions are not yet right for monetary tightening, Cathay Financial and DBS said.