Cathay Financial Holding Co (國泰金控) yesterday cut its forecast for Taiwan’s GDP growth to 2 percent this year, from its previous estimate of 2.3 percent, as the COVID-19 pandemic weighs on private consumption and disrupts supply chains across Asia.
“The downward revision would be worse had the government not prepared a special relief budget of NT$60 billion [US$1.98 billion] to aid affected sectors or announced a grace period for tax payments,” Cathay Financial economist Hsu Chih-chiang (徐之強) told a news conference in Taipei.
If the pandemic is contained by summer, the economy is expected to stage a “U-shaped rebound” after hitting the bottom in the first quarter with a quarter-on-quarter decline of 0.81 percent, Hsu said.
The economy would then slowly pick up in the second quarter with a quarterly gain of 0.11 percent, he said.
Cathay Financial’s forecast differed from that of the Directorate-General of Budget, Accounting and Statistics (DGBAS), which predicted a quarterly decline of 1.81 percent in the first quarter followed by a gain of 1.2 percent in the second quarter.
“The DGBAS forecast a V-shaped rebound in the local economy, but we think the effects of COVID-19 would still linger next quarter given a spike in the number of confirmed cases outside Asia,” Hsu said.
On an annual basis, the nation’s GDP is projected to rise only 1 percent in the first half of this year followed by an increase of 3 percent in the second half, likely enabled by resumed consumption, investment and launches of new mobile or electronic devices, he said.
As the outbreak curbs international travel, private consumption is forecast to grow 1.66 percent, down from the 2.01 percent the research team predicted three months ago.
However, investment is expected to advance 3.2 percent annually, up from the estimated 2.72 percent a quarter earlier, as the viral crisis might hasten the return of some Taiwanese companies’ operations from China, it said.
While research agency IHS Markit Ltd cut its prediction for the economy to 1 percent, Hsu said that “so far, we do not agree with this expectation, as Taiwan’s exports rose in the first two months and big companies such as Taiwan Semiconductor Manufacturing Co (台積電) still saw their revenue expand,” Hsu said.
“However, 1 percent GDP growth would be possible if the spread of virus persists,” he said.
Cathay Financial forecast that the central bank would this week lower benchmark rates by 12.5 basis points to ease the outbreak’s effects on the economy, which is more conservative than CTBC Financial Holding Co’s (中信金控) prediction of a cut of 25 basis points.
“The benchmark rate stands at 1.375 percent, exactly 12.5 basis points higher than their record low of 1.25 percent in the financial crisis in 2008.” Hsu said.
“The central bank is not likely to lower the rate to a level lower than that in 2008, as the economic situation is still better now,” he said.
“It does not make sense that the central bank must join its global peers on rate cuts, given that it did not raise rates in the past two years when most central banks did,” Cathay Financial chief investment officer Sophia Cheng (程淑芬) said.
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