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Cathay slashes Taiwan GDP growth forecast to 1.47%

Cathay Financial Holding yesterday slashed its 2012 GDP forecast for Taiwan by a huge margin, from 2.45 percent in June to 1.47 percent.

According to the financial firm, keeping the figure at 2 percent has all but become impossible. It also expressed hope that growth will be at least above 1 percent.

The firm cited pessimism among the public toward the economy, as domestic demand and exports show signs of weakness. Retail, restaurant and beverage sales from January to July grew 2.85 percent year-on-year, a situation made worse by tepid demands from overseas.

Yet the economy in the second half may pick up, Cathay said. “The economic climate from August to December may be characterized as 'sunny,' improving from July's 'cloudy,' although uncertainties still remain,” he said.

The financial scenario index compiled by Cathay has dropped from 110 in May to 108 in August, indicative of financial stability that may prompt the central bank to keep rates at the current level during its September meeting, it said.

As for Taiwan stocks, it would be hard for them to achieve breakthroughs in the short term, given the negative effects of the stock capital gains tax passed in July, Cathay said.

Internationally, uncertainties also remain, especially in Europe, the United States and China, it said. While China's economy may stabilize due to various policy measures, it is unlikely to experience a rally in the short term, Cathay said.

The European debt crisis is unlikely to worsen yet may add to financial instability, it said.

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