Cathay Financial Holding Co (國泰金控) has revised downward its forecast for local economic growth from 3.9 percent to 3.7 percent, as the Ukraine war has caused food and metal prices to rise, worsened inflation and dampened global demand, it told a news conference in Taipei yesterday.
It is the first time the financial conglomerate has lowered its forecast for this year — it predicted an annual GDP growth of 3.5 percent in September last year and raised the figure to 3.9 percent in December, Cathay Financial data showed.
“The Ukraine war is the main reason for our revision. Although Russia and Ukraine account for less than 2 percent of global GDP, they are key suppliers of wheat, metal and energy, and the war in Ukraine has driven up prices of oil, food and metals,” said National Central University economics professor Hsu Chih-chiang (徐之強), who heads a research team commissioned by Cathay Financial.
Photo: Allen Wu, Taipei Times
“These price increases will worsen inflation in the US, which was already high before the outbreak of the war. Serious inflation might lead to lower consumption and even to economic recession,” Hsu said, adding that the US Federal Reserve cut its GDP growth estimate to only 2.8 percent.
There is a strong correlation between the US and Taiwanese economies, as the US is an important economic partner, Hsu said, adding that Cathay’s research has shown that a drop of 1 percentage point in US economic growth correlates to a dip of 0.5 percentage points in Taiwan’s economy.
Although exports and investment this year are expected to maintain their momentum, they are unlikely to show a robust rise year-on-year because of a high comparison base last year, Hsu said, adding that private consumption is likely to be the main driver of local economic growth this year.
“High inflation in Taiwan might curb private consumption, but we still estimate good annual growth” in consumption, Hsu said, adding that spending weakened during a local COVID-19 outbreak last year.
Whether the central bank is to raise the benchmark interest rate again in June depends on local inflation, Hsu said.
The consumer price index in the first two months of the year rose 2.6 percent annually, and “if its growth surpasses 3 percent from March to May, there is an 80 percent chance that the central bank will raise the rate again,” Hsu said.
The government has other tools for controlling inflation, such as freezing electricity or transportation costs, and all of the tools are likely to be tried before the central bank hikes rates again, Hsu said.
The central bank would not necessarily raise the rate multiple times, as Taiwan’s inflation rate is much lower than in the US, he added.
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