Taiwan’s economy may contract in the third quarter, the first such contraction since 2003, as the fallout of the US financial crisis trims global demand for Taiwanese goods and domestic demand weakens, a Standard Chartered Bank report said last week.
“We see the possibility of a mild 0.4 percent year-on-year contraction in real GDP for the third quarter, the first annual decline since the second quarter of 2003,” Tony Phoo (符銘財), chief economist of Standard Chartered Bank (Taiwan), wrote in the report Taiwan — Re-assessing the 2008-09 Growth Outlook, which was released on Thursday.
Phoo said the quarterly contraction in GDP growth was attributable to “a significant drop in the trade surplus and declines in industrial output and retail sales” in the July-August period.
The economy declined 0.12 percent in the second quarter of 2003 because of the SARS outbreak. In November 2005, however, the government revised the figure to 0.11 percent growth, after the Directorate General of Budget, Accounting and Statistics (DGBAS) adopted a new calculation system, 93SNA (System of National Accounts), which was introduced by the UN in 1993.
Taiwan, like the other export-oriented economies in the region, depends on a prosperous world market for information technology products and other items that support its economy.
But after exports fell by 1.6 percent year-on-year last month and given the fast deteriorating global economic conditions in the short term, Standard Chartered revised its GDP growth forecast for Taiwan to 2.8 percent this year and 3.1 percent next year, from its previous estimates of 3.5 percent and 4.8 percent respectively, the report said.
“In a nutshell, we expect Taiwan to register sub-par growth performance over the next few quarters due to sharply slowing external demand alongside dimming prospects for the domestic sector, in particular employment and corporate investment,” Phoo wrote.
The DGBAS forecast on Aug. 22 that the economy would grow 3.04 percent year-on-year in the third quarter, 4.3 percent this year and 5.08 percent next year. The agency is scheduled to update its forecasts late next month.
The latest prediction by Standard Chartered followed a slew of downward forecasts by Deutsche Securities, Morgan Stanley and the IMF. It also came after Singapore’s latest economic data showed on Friday that its GDP fell 0.5 percent year-on-year in the third quarter, following a revised 2.3 percent growth in the previous quarter.
In a report released last week by Deutsche Securities’ Taipei-based economists, led by Julian Wang (王俊朗), the German brokerage predicted Taiwan’s GDP growth would drop to 3.4 percent this year and 1 percent next year, from the 4.3 percent and 3.3 percent respectively it forecast in June.
Deutsche Securities’ projection of 1 percent growth for next year, if it materializes, would be a new low after Taiwan recorded a GDP contraction of 2.17 percent in 2001 and 1.38 percent in 1974 because of the oil crisis that year.
In comparison, Morgan Stanley cut its growth forecast for Taiwan to 3.4 percent next year from the 4.8 percent it predicted in March, while the IMF lowered its forecast for next year to 2.5 percent from its April estimate of 4.1 percent.
To prop up falling equity prices that have depressed consumer confidence and domestic spending, the government recently introduced new plans to cushion the impact of the global financial crisis. But Phoo said policymakers in Taiwan have few alternatives to address the slowdown problem effectively.
The TAIEX has declined 39.69 percent since the beginning of the year, falling to 5,130.71 points on Thursday, its lowest close since it finished at 5,095.31 on July 3, 2003.
The TAIEX has fallen 43.43 percent since President Ma Ying-jeou’s (馬英九) administration took office on May 20, Taiwan Stock Exchange’s data showed.
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