HONG KONG: Economists have slashed their economic outlooks for Taiwan this year after the island posted a record decline in the fourth quarter.

Credit Suisse has made the steepest revision among those published so far, betting that Taiwan's gross domestic product will decline by 7.2 percent in 2009, instead of an earlier forecast of a 1.1 percent fall, after the island posted an 8.36 percent economic contraction in the fourth quarter.

"It is clear that any offset from government spending, ongoing and potential, would be modest against such a weak economy," said Joseph Lau, an economist at Credit Suisse, noting that private consumption fell 1.7 percent last quarter.

Credit Suisse widened its contraction forecasts for private consumption from 0.7 to 4 percent in 2009, and the fixed-asset investments are expected to shrink by 22 percent instead of its previous forecast of a 3 percent fall.

"We have also pushed back a material growth recovery until 2010, with inventories and private consumption likely to show deeper declines in the year," Lau said.

A Reuters poll showed that nine out of 10 economists cut their GDP growth forecasts for Taiwan after the fourth-quarter figures were released Wednesday. Taiwan's government also sharply lowered its expectations for the 2009 GDP to a 3 percent contraction, from a 2.1 percent growth previously expected.

Macquarie's GDP forecast has been downgraded to a 6 percent fall from a 2 percent fall, as the exports and investment spending are worse than expected.

"The recession will be deeper than the last downturn in 2001," said Donna Kwok, an analyst at Macquarie.

"Besides exports, investment is also front-ending this recession, and is expected to shave 0.5 percent off 2009 headline growth," Kwok said a research note.

CLSA said Taiwan's GDP in the fourth quarter was slightly better than its forecast of a 9.3 percent contraction, and the company maintains its 11 percent contraction forecast for this year.

The broker is holding a bearish view toward the exports and investment spending. "With export orders tanking and the manufacturing sector in a deep recession, our expectation is that investment spending will continue to contract every quarter from now through the second quarter of 2010," CLSA's analysts said in a note.

They also expect exports to continue to contract on a quarterly basis this year and through much of next.

(HK Edition 02/20/2009 page16)