Sat, Jul 19, 2003 - Page 10 News List

CIER lowers its GDP growth forecast

SICKLY FIGURES The research institution says consumer spending and public and private investment in the year's second quarter were both hurt by the SARS epidemic

By Joyce Huang  /  STAFF REPORTER

The Chung-hua Institution for Economic Research (CIER, 中經院) yesterday revised downward its economic growth forecast for this year to 3.02 percent from the 3.51 percent predicted in April.

"The 0.5 percent cut was a result of graver-than-expected impact of the SARS outbreak [in May and June]," CIER's president Chen Tain-jy (陳添枝) said yesterday at a press briefing.

The figure is still rosier than the government's forecast of 2.89 percent announced by the Directorate General of Budget, Accounting and Statistics in mid-May.

But the country needs not to be overly pessimistic since the domestic consumption and export performance will be picking up during the second half of the year in line with an economic recovery in the US and Japan, Chen said.

Furthermore, Taiwan will continue to benefit from the growing China market which consumes about one-third of the nation's exports each year, said Peng Su-ling (彭素玲), an associate research fellow at CIER's Center for Economic Forecasting.

China's economy is expected to grow more than 7 percent this year, she said.

Peng's viewpoint was shared by a senior economist at the Economist Intelligence Unit, Paul Cavey, at yesterday's event.

China, whose economy upturned strongly in the first quarter to have a 9.9 percent growth, will play a big influence on Taiwan's economy, Carvey said.

"SARS hasn't really destructed the main engine of growth in China," he said.

Due to SARS, consumer spending in the second quarter probably fell 0.67 percent from a year earlier, while public and private investment may decline by 0.64 percent, said Chou Ji (周濟), director of CIER's Center for Economic Forecasting.

Therefore, the institute downgraded its second-quarter growth forecast to 1.56 percent from its previous forecast of 2.98 percent, Chou said.

The GDP in the third and fourth quarters are projected to rise by 3.38 percent and 3.86 percent, respectively, he said.

"Growth in private investment, which may begin to pick up next year, will be key to bolster the economy," Chou said.

The government-funded think tank yesterday estimated next year's economic growth rate will reach 4.04 percent.

Nevertheless, if the SARS epidemic relapses in the winter, the GDP may drop to 2.65 percent, Chou said.

While declining consumer prices have led many economists to worry that the country may face growing deflationary pressures, Chou was more optimistic, saying consumer prices will gradually rise in the next six months.

The government's NT$300 billion public-spending program will help boost private spending and investment, Chen said. But he warned that the public's psychological expectations about falling commodity prices may delay their purchases, which would be hard for the government to tackle.

"What the government can do is to create a psychological expectation about inflation, that is, rising commodity prices, to stimulate private spending," Chen said.

To achieve this goal, Chen urged the government to give a 3-percent salary increase to government employees, so that private companies can follow raise their wages.

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