06.08.2001
2001 GDP growth forecast revised down to 2.4%

• Exports contracted 22.6% YoY in May, while imports fell a steeper 29.6% YoY as global demand remained depressed. The May figures were in line with our expectations and we therefore leave our 2001 export and import growth forecasts unchanged. We predict exports will contract 7.7% YoY this year while imports will fall 11.5%. YtD, exports already declined 9.5% and imports 15.2%. We continue to expect a very mild recovery in 2H01. While we maintain that export contraction is likely to bottom in July, we do not expect to see positive growth that early.

• Following the release of poor 1Q01 figures, we have further lowered our 2001 GDP growth forecast. 1Q01 GDP growth registered 1.1%, much lower than our forecast 2.7%. We now expect 2001 GDP to only grow 2.4%, down from our 3.5% forecast. We anticipate a mild recovery in GDP growth beyond July, and forecast 3.3% in 2H01.

• VB Primasia Opinion: The government will continue to favor lower interest rates and a weaker NT$ in an attempt to boost domestic demand and export growth. Taiwan's Central Bank (CBC) will hold its quarterly meeting on June 28, at which we expect to see further rate cuts. The CBC will continue to follow on the Fed's footsteps and reduce its rediscount rate by 12.5 - 25 basis points. The local currency is currently trading at around NT$34.1/US$1, down from NT$32.4/US$1 in January. The NT$ is likely to trade between NT$34.0 - NT$34.5 amid falling interest rates and weak GDP growth. However, we expect the depreciation of the local currency to be limited by falling interest rates in the US, and therefore do not anticipate a weakening beyond NT$34.5/US$1.

IrmakSurenkok@Primasia.com +886-[0]2-2547-8873