Cathay Financial Holding Co (國泰金控), the nation’s largest financial services provider, yesterday revised up its GDP growth forecast for this year to 3.73 percent, up slightly from the 3.7 percent it estimated in December, as financial markets showed signs of stabilizing.
However, the forecast is still lower than the government’s projection of a 3.85 percent increase. Cathay Financial attributed the gap to its dimmer view on private investment, said National Central University economics professor Hsu Chih-chiang (徐之強), who delivered the findings on behalf of the research team.
“We expect private investment to decline faster” as the European debt crisis dampens demand for exports, Hsu said.
Hsu did not give a figure, but the Directorate-General of Budget, Accounting and Statistics (DGBAS) predicted a 1.16 percent contraction in private investment this year, easing from the 2.35 percent -retreat last year.
Cathay Financial expects the economy to expand by a slim 0.89 percent year-on-year in the first quarter — slower than the 0.99 percent growth forecast by the -DGBAS — because of disappointing exports in the first two months of the year, Hsu said.
However, it shared the government’s view that the economy would improve in a mild, but steady manner from this quarter onward, Hsu said.
From stable, the economy may gain momentum toward the end of the first half, as technology firms enter their high season, Hsu said.
Cathay Financial expects GDP growth next quarter to expand by 1.57 percent year-on-year, lower than the 2.7 percent growth the DGBAS estimated last month, Hsu said.
Oil prices may pose a bigger downside risk this year, while the eurozone endeavors to recover from its fiscal problems, Hsu said.
For the full year, GDP might expand only 2.9 percent this year from last year if oil prices accelerate faster, heightening inflationary pressures, he added.
However, the Minister-Without-Portfolio Kuan Chung-ming (管中閔) said yesterday that an “appropriate rise” in consumer prices would benefit the economy as it could stimulate the whole market.
“The rising margin of Taiwan’s consumer prices has remained limited in the past few years, which has not been good for the economy as a whole,” Kuan said at a forum in Taipei.
“You need a certain rise in consumer prices to heat up the economy,” he said. “Maintaining appropriate, mild and manageable inflation will be good for the economy.”
Kuan’s remarks came a day after the DGBAS said that a 10 percent rise in gasoline prices would raise the consumer price index (CPI) by 0.37 percentage points, dragging down Taiwan’s economic growth by 0.26 percentage points.
Even so, the central bank is likely to keep interest rates steady this year in light of the delicate external backdrop, Hsu said.
“The central bank will take cues from its global peers in shoring up economic growth while seeking to drain excess funds through open market operations,” he said.
There was very limited room for the local currency to strengthen against the US dollar after gaining 2.6 percent this year, Hsu said.
Additional reporting by CNA
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