Cathay Financial maintains 2.3% growth forecast for Taiwan's 2018 GDP

Taipei, June 23 (CNA) Cathay Financial Holding Co. has left its forecast for Taiwan's 2018 gross domestic product (GDP) growth unchanged at 2.3 percent, expressing caution due to growing trade tensions between the United States and China.

However, the Taiwan company said it was maintaining its 2.3 percent growth forecast as the domestic economy was still on a path to stable recovery.

In March, Cathay Financial raised its estimate for Taiwan's 2018 GDP growth by 0.3 percentage points to 2.3 percent, citing strong global demand, but its forecast was below that of the government's.

In late May, the Directorate General of Budget, Accounting and Statistics (DGBAS) upgraded its growth forecast for Taiwan's 2018 GDP by 0.18 percentage points to 2.60 percent.

In a breakdown of Cathay Financial's most recent forecast, the company put Taiwan's 2018 export growth at about 3 percent, compared with the DGBAS's estimate of a 3.34 percent rise, and estimated import growth at 3.23 percent, below the DGBAS's 4.86 percent projection.

Noting that the economy grew sequentially by only 0.20 percent in the first quarter of the year, Cathay Financial forecast second-quarter growth of 0.19 percent, but said the growth momentum will pick up in the second half of the year.

The company said many local industries are optimistic about the domestic economic outlook amid a continued global recovery, as indicated by the third consecutive "green light" of the National Development Council's composite index in April, which signaled stable growth.

National Central University economist Hsu Chih-chiang (徐之強), head of the Cathay Financial research team that made the forecast, said however that the escalating trade tensions between the U.S. and China could send ripples through the global financial markets this year.

In addition, if the U.S. Federal Reserve speeds up its pace of interest rate hikes this year, the global financial markets will be affected by a resulting drop in liquidity, he said. Hsu also pointed to rising crude oil prices, which he said are likely to put inflationary pressure on the local market.

In turn, inflationary pressure might prompt Taiwan's central bank to tighten its monetary policy by the end of the year, he said, noting that the DGBAS has forecast a 1.49 percent rise in the 2018 local consumer price index, the highest since 2013.

On Thursday, the local central bank decided to leave its key interest rates unchanged for the eighth consecutive quarter, keeping the discount rate at 1.375 percent.