Citigroup Taiwan yesterday nearly halved its forecast for the nation’s GDP growth to 1.5 percent next year — down from its estimate of 2.8 percent in October — on concerns the global recession will sink the country’s outbound trade as domestic demand remains sluggish despite the government’s stimulus measures.
The leading world financial services provider, which in July raised the projection to 5.1 percent for next year, said that it had no certainty about when the economy would hit bottom and regain momentum as the financial storm is bound to leave the global economic landscape severely marred.
“Taiwan is expected to squeeze out a low GDP growth of 1.5 percent, driven chiefly by government expenditure,” Cheng Cheng-mount (鄭貞茂), head economist at Citigroup Inc in Taiwan, told a media briefing in Taipei. “The [projected] showing is insignificant and may prove untenable if the government fails to implement assorted stimulus measures effectively.”
Cheng said the toughest challenge for Taiwan does not lie in the credit crunch but in slumping exports as consumers in the US, Europe, Japan and other major trade partners tighten their belts amid the economic downturn.
Citigroup put the GDP growth forecast at minus 1.5 percent for the US next year, the Euro Area at minus 1.4 percent, and Japan at minus 1.2 percent, the institute’s year-end report showed.
“When Americans and Europeans slow consumer spending, exporters worldwide will suffer,” Cheng said. “Taiwan will feel more acute stress owing to its heavy reliance on outbound trade.”
China, the destination of 40 percent of Taiwan’s shipments, will fare relatively better next year, with its GDP growth estimated at 8.2 percent, bolstered mainly by domestic construction projects, Cheng said.
“Taiwanese businesspeople in China who can capitalize on the trend may emerge from the financial crisis unscathed,” Cheng said.
The economist shied away from speculating on recovery, saying that visibility is low as the fallout of the financial storm has yet to settle.
The report ranked Taiwan third in the world for countries least likely to see a financial crisis, behind China and Saudi Arabia. It predicted the consumer price index would slow to 1 percent next year with unemployment rising to 4.5 percent.
Cheng said the central bank would further loosen monetary policy in an attempt to channel idle funds to equity markets or investment projects.
The top monetary regulator is likely to cut interest rates by 50 basis points tomorrow and bring down the discount rate to 1.75 percent next year, Cheng said. The rate stands at 2.75 percent now.
Cheng said his company would have to raise Taiwan’s fiscal deficit — estimated at minus 1.7 percent next year, a figure arrived at before the government introduced the shopping voucher plan and a NT$420 billion (US$12.53 billion) spending package.
Meanwhile, Cheng predicted that demand for the US dollar would remain strong next year and crude oil would trade at an average of US$65 a barrel.
Citigroup’s revised GDP forecast is lower than the government’s projection of 2.12 percent and BNP Paribas’ 2 percent, but higher than Chung-hua Institution for Economic Research’s 1.24 percent and the Economist Intelligence Unit’s 1.3 percent.
The Academia Sinica and the Taiwan Research Institute are scheduled to unveil their forecasts on Friday.
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