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Recovery is under way: report

A number of external and domestic factors are set to boost Taiwan's economy from the second quarter of this year onward, a Hong Kong-based economist at Goldman Sachs said in a report.

"The brightening global economic outlook, especially the recent acceleration in US information technology orders, creates a very positive backdrop for Taiwan's external sector performance," said Grace Ng, author of the report.

In addition to the export sector, Ng said, increasing domestic demand will help drive up the nation's economic growth rate to 3.3 percent this year, and to 5.0 percent for next year.

"In fact, the growing momentum of domestic demand recovery is already underway. We believe the potential is still being underestimated by the market," Ng said.

In late July, Wu Chung-shu (吳中書), a research fellow of the Institute of Economics at Academia Sinica, said the impact of SARS was likely to result in consumer spending contracting by 1.57 percentage points in the second quarter. But Goldman Sachs believes Taiwan's domestic demand has been growing since the SARS outbreak.

"The potential upside to the Taiwan economy in this cycle would not be restricted to the typical pass-through from the external sector into the domestic economy," Ng said.

Private-sector capital expenditure, the report said, is the main factor that drove growth. Government policies and a favorable interest rate environment also contributed to the recovery in the domestic sector, it added.

The report said Taiwan's property market has begun to show signs of an upturn, with official data showing transaction volume and building permits for housing construction picking up by 23 percent and 42 percent year-on-year, respectively, last year.

The report also cited statistics from Sinyi Real Estate Inc (信義房屋), saying residential property prices in Taiwan began to stabilize late last year.

In addition, the nation's interest rate cuts since late 2000 have "finally worked their way through to consumer-loan growth," and the government's subsidies on mortgage loans and cuts in the land-value incremental tax rate, it added.

One local economist agreed with the report, saying domestic demand has been picking up since late June.

"The global economic recovery following the end of the war in Iraq and SARS has helped to revive the local economy," Chen Miao (陳淼), a researcher at the Taiwan Institute of Economic Research (台經院), said yesterday. "A series of government measures including a loose monetary policy and public construction projects further resulted in consumer spending."

The nation's Directorate General of Budget, Accounting and Statistics forecasted last month that the annual GDP growth for his year would be 3.06 percent, while figure is expected to climb to 3.81 percent next year.
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