Mon, May 12, 2003 - Page 10 News List

Virus will dent economic growth

BELEAGUERED BUSINESS Think tanks and government planners say GDP growth could drop below 2 percent if the epidemic lasts through the second half of this year

AFP , TAIPEI

The spread of the deadly SARS virus, which has claimed 18 lives in Taiwan and battered most business activities, could drag the nation's economic growth for this year down to around 3 percent, officials and analysts say.

The projections, made by think tanks and government economic planners, were based on the assumption the spread of SARS could be contained by the end of next month.

The growth in GDP could further tumble to below 2 percent if the epidemic lingered through the second half of this year, they said.

"The local tourism industry -- including airlines, hotels and restaurants -- is worst hit, and their losses would amount to hundreds of millions of dollars," said Yu Teh-pei, an economics professor at Soochow University.

Consumer spending has also plunged with many people staying home rather than potentially exposing themselves to the disease, Yu said.

The Council for Economic Planning and Development earlier this month lowered its GNP growth forecast for this year from 3.68 percent to 3.05 percent during the US-led attack on Iraq and the SARS outbreak.

The central bank put economic growth for this year at 3.14 percent in its latest forecast, but the figure would be lowered by another 0.86 percentage points if SARS continued haunting the nation through the second half of this year, according to the council.

Shrinking exports -- mainly due to decreased demand from the nation's largest buyer, China, which has been worst hit by SARS -- and narrowed domestic investment were also main factors for slower economic growth, Yu said.

China absorbs about one quarter of the nation's exports. It is also the largest overseas investment site for Taiwanese enterprises, attracting an estimated US$70 billion in recent years.

Huang Chih-peng, director of the Board of Foreign Trade, earlier this week told the Economic Daily News that he expected exports in July to drop 15 percent to 25 percent due to the worldwide spread of the virus.

Exports last month rose 5.6 percent from a year earlier to US$11.47 billion, but the value was down 9.1 percent from US$12.62 billion in March.

The falls in private consumption and private investment also took their toll on the economy, said Liu Yi-cheng, an economist at the National Investment Trust.

"Private consumption has taken a heavy blow. People have now turned reluctant to patronize department stores or to attend wedding banquets amid the SARS scare.

"According to the latest government statistics, capital equipment imports in April fell 15.3 percent from a year earlier, a clear indication of a slowing private investment," Liu said.

To help ease impact of the epidemic, the legislature has approved a NT$50 billion (US$1.4 billion) fund to finance various anti-SARS programs and assist industries suffering from the outbreak.

The Chung-Hua Institution for Economic Research has lowered its projection for the year's economic growth to 3.27 percent, down from the 3.51 percent it made in mid April.

It is set to cut the forecast by 0.8 percentage points if the deadly virus is not brought under control by the end of the year.

The Institute of Economic Research predicted the GDP growth of 3.02 percent if SARS is contained by the end of next month.

A prolonged virus spread until September would drag down the growth to 2.93 percent, and another 0.62 to 1.56 percentage point drop was expected if the SARS crisis persisted throughout the year, according to the institue estimates.

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