Citigroup Taiwan yesterday raised its forecast for the nation’s GDP growth to 4.7 percent — up from the 4.5 percent it projected in April — on expectations that government spending would boost domestic demand in the second half of this year.
Cheng Cheng-mount (鄭貞茂), chief economist at Citigroup Inc in Taiwan, said he expected the central bank to tighten its monetary policy again in September to curb inflation.
“While aware of the inflationary pressures, I’m cautiously optimistic about Taiwan’s economic outlook,” Cheng told a media briefing on the firm’s latest economic report.
“The annual GDP growth is expected to climb 4.7 percent this year and 5.1 percent next year,” he said.
Cheng said that exports, which put up a better-than-expected performance in the first half of this year, would continue to drive the economy in the second half, but the momentum would slow.
“Export growth will accelerate by two digits in the third quarter and expand by a single digit in the fourth quarter,” Cheng said.
The government’s NT$130 billion (US$4.28 billion) stimulus package would fill the gap and boost domestic demand, Cheng added. The spending, intended to help local governments fund public infrastructure projects, is expected to push up annual GDP by 0.45 percent, the Cabinet said.
Citigroup also predicted that the consumer price index would edge up further in summer after reaching 4.97 percent last month. But the global financial services company believed that inflation would peak in the third quarter and trend downward in the fourth quarter.
Cheng said this would lead the central bank to raise the benchmark interest rate by 0.125 percentage points as well as ask lenders to set aside more saving reserves in September. The measure is estimated to take some NT$200 billion away from the capital market, Cheng said, describing the sum as insignificant.
“The monetary regulator is unlikely to adopt drastic steps when fighting inflation as it has displayed concerns for economic growth,” Cheng said.
The economist added that the central bank would stop raising interest rates in the fourth quarter or next year after consecutively hiking interest rates for the past 16 quarters.
Citigroup’s revised GDP forecast is the second highest, next only to an estimate of 4.78 percent by the nation’s statistics bureau. It is higher than the Taiwan Research Institute’s (台綜院) 4.7 percent, Polaris Research Institute’s (寶華綜合經濟研究院) 4.6 percent and Chung-hua Institution for Economic Research’s (中經院) 4.5 percent.
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