Taiwan economic forecasts cut after worst quarter on record

Taiwan's economy will shrink by 6.5 percent, instead of an earlier forecast for a 3 percent drop, Goldman Sachs Group Inc. wrote in a report yesterday. UBS AG widened its contraction forecast to 6.1 percent from 1.6 percent and HSBC Holdings Plc said it expects the economy to fall 5.2 percent instead of its earlier 0.7 percent estimate.

Central bank Governor Perng Fai-nan yesterday cut the benchmark discount rate to a record low 1.25 percent from 1.5 percent, ten minutes after the statistics bureau reported the economy shrank 8.36 percent in the fourth quarter.

Taiwan's statistics bureau yesterday lowered its own full- year forecast to a retraction of 2.97 percent, compared with its November estimate for growth of 2.12 percent.

“The synchronized sharp drop in exports, imports and investments again highlights the significant dependency of the investment cycle on export demand,” Enoch Fung, an economist at Goldman Sachs wrote in a report.

Goldman Sachs also lowered its three-month forecast for the Taiwan dollar to NT$36 against the U.S. dollar from an earlier NT$34 estimate. The currency will rebound to NT$34.5 in 12 months, lower than a previous forecast for NT$33, Goldman Sachs said.

Taiwan Dollar

“Given the downside surprise in the growth momentum in the near term, we believe the capital flows will turn less supportive of the Taiwan dollar in the near term,” the report said. “We do not believe the central bank will likely engineer a deliberate devaluation of the Taiwan dollar to bolster exports.”

Taiwan's economy could reach a bottom during the first quarter, UBS economist Sean Yokota wrote. HSBC expects a rebound next year, with growth of 2.5 percent in 2010, according to economist Frederic Neumann.

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