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Bull Case

Even in our bull case scenario, we do not bet on a very strong global recovery. We expect the bull case to be reached with more government support measures at 5% of GDP, up from the announced 2%, which would help achieve a milder recession than in 2001. Growth in 2010 would surge above trend due to a pick-up in exports, asset prices and the continual liberalization via the cross-strait relationship, enabling Taiwan to leverage the rebounding growth in China. No sharp NT$ appreciation is expected, however, as a means to support exporters, and interest rates remain low.

Bear Case

Global recession lasts throughout the year and loops back to financial markets, causing another round of capital markets turmoil. Trade rebounds in 2Q09 after too much de-stocking, but deteriorates again in 2H09, and it is too late for the Taiwanese government to step up supportive measures, which work with a time lag. The NT$ depreciates sharply due to near-zero interest rate, capital outflow and as the most direct and immediate policy to help the exporters.