Standard Chartered Bank has slashed its forecast for Taiwan’s economic growth to 4.6 percent this year, from its prior estimate of 5.6 percent, amid concerns the global market turmoil may weaken exports and drive local firms to cut hiring and capital spending.
“We revise down our GDP growth forecast after the latest economic data releases — including industrial production and export shipments and orders — point to an extended soft patch in economic activity,” Tony Phoo (符銘財), a Taipei-based economist at the British banking group, said yesterday.
The adjustment implies that the nation’s economic growth may slow to 4 percent in the second half, after expanding 6.16 percent in the first quarter and moderating to 5.02 percent in the second quarter, Phoo said.
Nonetheless, Standard Chartered is less bearish compared with the Directorate-General of Budget, Accounting and Statistics, which last month predicted private investment would contract by more than 8 percent in the second half, after staging a robust growth of 8.5 percent in the first six months.
Most manufacturers do not expect orders to collapse like they did in 2008, although external demand has turned out weaker going into the high season, Phoo said.
Taiwan Semiconductor Manufacturing Co (台積電), the world’s largest contract chipmaker, recently said it was confident its factory utilization rate would begin to pick up next quarter amid signs of improving order visibility.
A survey by the Taiwan Institute for Economic Research (台灣經濟研究院) echoed that tone, saying 40.8 percent of domestic makers expect overall business conditions to improve in the coming six months.
“We therefore believe local businesses will delay rather than significantly cut investment spending, barring an imminent risk of a double-dip [recession] in the US,” Phoo said.
A growing credit appetite among small and medium-sized enterprises (SMEs) is another sign that business confidence is likely to remain resilient amid external headwinds, he said.
Unlike large corporations, SMEs rely almost entirely on domestic banks for operating and investment capital and are less sensitive to foreign market volatilities, Phoo said.
Larger loan demand by SMEs bodes well for the job market, whose continued recovery is critical to consumer confidence and spending, he said.
The potential fallout from Europe’s widening debt crisis is likely to have a limited impact on the health of the Taiwanese banking sector, Phoo said.
Standard Chartered also lowered its inflation forecast for Taiwan to 1.6 percent this year, from its prior estimate of 2.2 percent, as benign weather conditions keep food prices stable.
With upside risks to inflation easing, the global financial market turbulence is likely to prompt the central bank to maintain its key rates when it holds its quarterly board meeting on Sept. 29, Phoo said.
“We expect the central bank to keep policy rates steady through the first half of next year, before the economy shows clearer signs of growth,” he said.
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