Morgan Stanley Dean Witter, a leading US investment bank, said it has slashed its 2001 economic growth forecast for Taiwan as it expects domestic political turmoil and slower global electronics demand will hurt the nation's economy.
Morgan Stanley expects Taiwan's economy will grow 4.6 percent next year, compared with an earlier projection of 6 percent, the company said yesterday. It also cut its 2001 export growth outlook for Taiwan to 10 percent from 12 percent. Slower US growth will mean weakening demand for Taiwan's semiconductors, notebook computers and other electronic exports. Morgan Stanley also reduced its US growth forecast for next year to 3 percent from 3.5 percent.
"The risks facing the Taiwanese economy are considerable," said Andy Xie, Morgan Stanley's chief economist for Asia outside Japan. "Our goal is to make people think about it, because political troubles make it difficult for Taiwan to make decisions on the much-needed reforms in the economy."
Not all economists agree, however. Taiwan's strong electronics sector and growing demand from China could offset any setbacks related to domestic politics in the financial markets.
"There is a dislocation in the financial services and rising bad debt," said Neal Stovicek, head of research at National Securities. "But the relatively strong electronics sector and Taiwan's China-related production remains quite buoyant, mainly underpinned by stable global growth."
Cristina Liu, a finance professor at the National Taiwan University and head of Accumind Consulting, a Taipei financial consulting firm, said that "the recent drop in the stock market is an indication of a slowdown ahead."
Liu, however, believes that the downward revisions of economic growth projections may be triggered by fears of constitutional crisis in Taiwan and its impact on the local economy.
Xie said that the political stalemate in Taiwan may take a toll on government efficiency just at a time when Taiwan is facing one of its toughest challenges to its dominance in the electronics sector. The Legislative Yuan has overturned the new government's budget and has all but closed the doors on negotiation between the legislature and the Cabinet.
"If the current confidence crisis lasts for two more years, Taiwan's IT sector may not be competitive anymore," Xie said. "Right now Taiwan is [only] two or three years ahead [of other Asian nations in the IT sector]."
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