Citibank Taiwan Ltd (台灣花旗) yesterday slashed its GDP forecast for the local economy, predicting it would shrink 3.2 percent this year on worsening exports, compared with previous estimates of 0.67 percent contraction, in the latest in a series of forecast cuts.
The nation’s export-dependent economy will gradually rebound to 3.3 percent growth next year, driven by “a more favorable global environment,” chief economist Cheng Cheng-mount (鄭貞茂) told a media briefing yesterday.
Calling himself “relatively optimistic,” Cheng said he expects the nation’s exports to average a year-on-year decline of 12.5 percent this year, much smaller than the analyst consensus of a decline of as much as 40 percent.
“We’ve seen a pickup of ‘urgency orders,’ which may not be sustained for a long time, but proves the consequence of too much de-stocking in the fourth quarter of last year,” Cheng said.
Low inventories and easing credit in China could both rejuvenate the nation’s exports in the fourth quarter of this year, he said, adding that domestic economic activity would likely continue to contract sharply this quarter and stay in the negative territory until the third quarter.
The US bank’s revised GDP forecast was slightly worse than the government’s prediction of a 2.97 percent contraction for this year, but higher than estimates by several other foreign research institutes.
BOTTOM OUT
UBS Investment Research last week said that the local economy would experience a 6.1 percent drop this year, although chief economist Sean Yokota said that Taiwan’s economy would bottom out in the first half of the year and begin posting positive quarterly growth in the second half.
HSBC disagreed, saying that a rebound would not come until next year and forecast a contraction of 5.2 percent this year. Barclays Capital and Goldman Sachs said the economy would shrink by 4 percent and 6.5 percent respectively, compared with the harshest estimates of a 11 percent contraction by both Credit Suisse and CLSA Ltd (里昂證券).
PRIVATE INVESTMENT
Citi Taiwan yesterday estimated that private investment would see 4.5 percent year-on-year growth next year after declining by 15.9 percent this year.
The nation’s unemployment rate would rise to 5.7 percent this year while the inflation consumer price index would ease to zero, suggesting a relatively lower risk of deflation this year, Cheng said.
The chief economist yesterday refused to comment on the New Taiwan dollar’s future.
But Calyon, the corporate and investment banking arm of the Credit Agricole group, yesterday forecast that the local currency would likely further decline to NT$35.5 against the US dollar before June, Sebastien Barbe, currency strategist with Calyon in Hong Kong, told a European Chamber of Commerce in Taipei gathering yesterday.
CURRENCY
The NT dollar will stay soft in the first half of the year because of deteriorating current account balances, triggered by the export slump, persisting capital outflows and lower interest rates, he said.
The NT dollar yesterday gained NT$0.05 to close at NT$34.747 against the greenback on turnover of US$627 million.
Calyon said the local currency would recover to the NT$32 level next year when measures with China kick in, providing an economic boost to Taiwan and the global economy stabilizes.
Economically, Barbe yesterday said Taiwan would pay a price for its strong reliance on exports this year, forecasting a 6 percent drop in GDP this year.
BANANAS
On the US economic front, another Calyon economist, Mitul Koteche, yesterday said he anticipated “a deep U-shaped 21-month recession” stateside with more pain such as rising unemployment and consumer retrenchment yet to come.
He urged the US government to seek unconventional bail-out policies, including the nationalization of banks or the facilitation of more bank closures.
“America’s economy once again has a distinct whiff of bananas,” he said. “And don’t expect a quick rebound back,” he said, referring to an episode involving former US president Jimmy Carter’s economic adviser, Alfred Kahn, who used the word “banana” instead of “depression” to avoid scaring people.
ADDITIONAL REPORTING BY STAFF WRITER
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