Taiwan likely to hit technical recession: BNP

Taiwan is likely to suffer a technical recession in the second half of the year that may see major technology companies cut inventory and earnings forecasts as the global economy flounders, BNP Paribas Securities said yesterday.
“We expect GDP to fall marginally in the second half on the back of a US recession, stagnation in Europe and growth slowing below trend in China,” the French brokerage said in a report.
The nation’s export-oriented economy is forecast to have expanded 3.8 percent last quarter and to rise 3 percent this quarter from year-ago levels, BNP Paribas said.
On a sequential basis, however, GDP may have contracted 0.1 percent during the July-to-September period and looks set for a 0.5 percent decline this quarter, the report said.

PRESSURE
“Technology firms are under pressure to trim inventory as the overall index remains higher than during the 2008 global financial crisis,” Jim Hung (洪進揚), head of research at the brokerage’s local branch, said after its two-day Taiwan Conference.

Most listed firms and investors have turned conservative about prospects ahead because of poor visibility, with orders only running from two weeks to one month, Hung said.
BNP expects the nation’s GDP growth to rise 4.3 percent this year from a year earlier and to slow to 2.5 percent next year, the report said.
Although Taiwan is striving toward a service-based economy, it remains one of the most sensitive to US and European demand developments, the report said. Direct exports to the EU and the US accounted for 11 percent of the nation’s GDP last year, it said.
Taiwanese high-tech firms in the Apple Inc supply chain may fare better than peers and more time is needed to weigh the market response to new lightweight laptops, generally referred to as ultrabooks, Hung said.

FINANCIAL SECTOR
Increasing uncertainty bodes ill for the financial sector, with life insurance-centric groups struggling to strike a balance between negative interest spreads and foreign exchange losses, Hung said.
Bank-centric financial groups are less vulnerable, but earnings growth is limited unless they can make significant inroads in China, Hung said.
“This is unlikely to be realized soon given Taiwan’s slow opening,” Hung said.
By contrast, domestic demand-focused firms, especially those with branded products and sales channels in China, may continue to grow and flourish, Hung said.

The weak sentiment at home and abroad may send the local bourse to more rollercoaster rides in the coming six months, with the TAIEX expected to bottom out in the first quarter at between 6,500 points and 6,800 points, Hung said.
Against that backdrop, the central bank may cut interest rates by 25 basis points to help stimulate economic growth, BNP Paribas forecast.

Source: Taipei Times