DBS Bank Ltd yesterday hacked its GDP growth forecast for Taiwan this year to 0.9 percent, down from its estimate of 2.3 percent two months earlier, in light of the COVID-19 pandemic and increasing financial market volatility.
The bank’s latest forecast was even lower than London-based IHS Markit Ltd’s estimate of 1 percent, while other research institutes’ projections range from 1.6 percent to 2.6 percent.
Taiwan’s economic momentum is being negatively affected by the pandemic, DBS said.
The rapid spread of the disease from Asia to Europe and the US has dampened the bank’s previous expectation of a “V-shaped” global rebound in the second quarter aided by China’s supply chain being restored and a pick-up in demand, DBS economist Ma Tieying (馬鐵英) said in the report.
“Despite China’s recovery, weakness in production and consumption outside of China will likely continue to weigh on the global economy next quarter,” Ma said.
The pandemic has also triggered turbulence in global financial markets, which would negatively affect the real economy, she added.
In Taiwan, an economic downcycle began this quarter due to disruptions to its China-centered supply chain, while outlook for the second quarter is also deteriorating due to decreasing demand from the US and Europe, Ma said.
“The risk of a technical recession is looming,” she said.
DBS also trimmed its GDP growth forecast for South Korea from 2.2 percent to 0.8 percent for the same reason.
If the predictions are accurate, they would be the lowest figures in Taiwan and South Korea since 2009, Ma said.
Japan’s economy, which reported a quarterly contraction of 7.1 percent last quarter, is predicted to enter a recession this year with an annual decline of 0.6 percent due to the effects of COVID-19, Ma said.
Given the negative short-term rates in Japan and lowered rates in South Korea and Taiwan following rate cuts by central banks last week, “the room for further monetary easing is very limited in these three economies,” Ma said.
“Fiscal policy will need to play a bigger role in cushioning the fallout of COVID-19 and supporting growth going forward,” she said.
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