TAIPEI: Taiwan might have difficulty revitalizing its economy this year after slipping into a recession in the second half of last year and has yet to show signs of recovery, two foreign banks said.
DBS Bank and Deutsche Bank cut their growth forecast for Taiwan this year from 2.4 percent to 1.8 percent, after the nation’s export-reliant economy contracted 0.28 percent last quarter, bucking a 0.49 percent uptick that the government’s statistics agency had predicted earlier.
Taiwan entered recession after GDP logged two consecutive quarters of decline, the worst since 2009, even though the economy managed a 0.85 percent growth for the whole of last year.
“The recovery outlook remains elusive, because the deterioration in export orders in December last year dashed any hope for a quick turnaround in exports, industrial production and private investment in the coming months,” DBS said in a report.
Growth would stay at low levels in the first half of this year, the bank said, at variance with popular belief that the economy would fare better this year.
Taiwan’s expectations of improvement rely on recovery in the US economy, the stabilization of the slowdown in China and tapering off of the disruptions on oil prices, all of which are going counter to expectations, the bank said.
Deutsche Bank said it is not surprised at the decline in economic activities last quarter, although the pace beat its forecast of 0.1 percent. Lingering global technology inventory adjustments are to blame, the German lender said in a report.
Worse still, the economy appears yet to have bottomed out and might see another quarter of contraction, Deutsche Bank said.
“We see a material chance of contraction in the current quarter and precarious global financial market conditions merit a downward revision in our GDP forecast,” the bank said in its report.
Downside risks are intensifying due mainly to uncertainty surrounding the growth in the US and China, it said.
Market volatility in China and oil price declines bode ill for Taiwan’s trade performance in the foreseeable future, given its heavy economic dependence on China, the two banks said.
Minister of Finance Chang Sheng-ford yesterday said that exports contracted by a double-digit percentage last month. The ministry is to unveil detailed figures on Feb. 16.
Private consumption might not pick up significantly even though the government has provided subsidies for domestic travel and energy-efficient home appliance purchases, the two lenders said.
The central bank might step in and cut interest rates by 12.5 basis points each in March and June, they said.
The central bank might also allow the New Taiwan dollar to weaken to boost export competitiveness, the banks said.
“The New Taiwan dollar may soften to NT$36 against the US counterpart at the end of this year,” Deutsche Bank said.
The government is likely to offer more subsidies to boost consumption and tourism, it said.
