Key Issues
From Q108 we will be calculating the Commercial Banking Business Environment Rating (CBBER) for each of the countries surveyed by BMI. This will permit a more systematic and comprehensive comparison of the conditions within the banking industries of the various countries than was possible in the past. For each country, it will also facilitate a comparison of the conditions within the banking sector and conditions prevailing in other sectors. Taiwan’s overall CBBER is 70.8. The equivalent figures for the USA and the eurozoneland are 84.8 and 81.4, respectively. Taiwan’s CBBER is mid-ranged within a regional (Asia Pacific) context, but quite high internationally. Within the CBBER, the most important aspect is the (banking) market structure element of the limits of potential returns. This element accounts for 42% of the overall CBBER. Taiwan’s rating for this element (73.8) is higher than the overall CBBER and higher than the country structure element of the limits of potential returns (63.9). It should also be noted that the Taiwanese banking sector has reasonably large total assets relative to those of the other countries that BMI has surveyed. Growth in assets, loans and deposits is, however, very slow by international standards, and Taiwan is ranked in the bottom few countries, of the 59 surveyed, for growth in each area. Taiwan’s strong Q207 GDP figure, on the back of strong exports and an upsurge in private investment, has prompted us to revise up our full-year 2007 GDP estimate from 4.1% to 5.1% for 2007. This is a move we have been considering for some time, on the back of encouraging macroeconomic data in H107, but we still see considerable risks to the continuation of the current recovery. These include still-sluggish domestic consumption, the risk of lower exports in H207 due to the US sub-prime meltdown and the corporate sector holding back investment due to political uncertainty connected with the upcoming parliamentary and presidential elections. We arealso upbeat about the prospects for 2008 and we have raised our 2008 GDP forecast from 4.1% to 4.7%. That exports rose in Q207 was perhaps not surprising, considering the high momentum in China, the rest of East Asia and the EU. Orders from China and Hong Kong increased by 24.7% year-on-year (y-o-y) in July 2007, up from 15.6% in June, underlining our view that rapid growth in China will buttress Taiwan’s recovery. Export orders from the EU and Japan increased by 32.5% y-o-y and 25.7% y-o-y, respectively, in July, providing a strong indication that the momentum of the export sector will be maintained or may even accelerate in H207. Export orders from the US were, however, weaker in July, increasing by a meagre 6.5%. Further weakness can be expected following the slowdown of the US housing market and connected credit problems. US retail sales have been weakening over 2007 and it is possible, if not likely, that the current real estate market downturn will exacerbate this trend.
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