Tue, Nov 18, 2003 - Page 10 News List

Politics may hurt GDP growth

INSTABILITY Economists and government officials remain optimistic about the well-being of the economy, but are wary of the effects of the presidential election


Analysts and market watchers predicted yesterday that Taiwan's economic strength will persist through next year driven by the high-tech industry and foreign investment, but warned that the bright outlook may be dimmed by political factors, especially the presidential election.

"In general, I think Taiwan's economy will continue to pick up following in the footsteps of the global economic recovery next year as the government expects," Wei Duan (韋端), convener of the National Policy Foundation's (國家政策研究基金會) Finance and Monetary Division, told delegates to a seminar that the foundation held yesterday.

The Directorate General of Budget, Accounting and Statistics (DGBAS) last week raised its forecasts for the nation's economic growth next year to 4.1 percent from the 3.81 percent it predicted in August.

Increased investment in the high-tech industry, especially in the flat-screen thin-film transistor liquid-crystal display (TFT-LCD) sector, which is estimated at about NT$300 billion, is the main factor driving up GDP, Wei said.

Peter Kurz, CEO of Insight Pacific Investment Research (月涵證券) in Taipei, indicated that foreign investment in the local stock market will bolster the nation's economy as well.

"Currently, foreign capital accounts for 17 percent of the local stock market ... I expect the number will go up next year, as investors are gradually pulling out from the US stock market and putting their money in the Asian region," Kurz said.

The reason causing the switch in investment is the termination of the manufacturers' investment tax credit (MIT), Kurz said. The MIT, a sales tax exemption available to manufacturing companies when purchasing equipment and which was put into effect in the early 1990s, will be phased out at the end of the year.

Amid the optimism, academics warned that the impact of political factors on Taiwan's economy will be amplified next year by the presidential election in March.

"The political instability brought on by the election, along with the presidential election in the US to be held in November, will definitely hold back investment," Wei said.

Aside from the election, Wei said the government always exerts political influence that hampers the economy from growing.

For example, China has become a major trading partner with Taiwan in terms of exports and investment in recent years, but the government still sets restrictions on about 2,000 imports from China, and has not yet liberalized direct cross-strait transportation, which various business groups have long been crying out for, Wei said.

According to Ministry of Economic Affairs statistics, for the first eight months of the year, goods exported from Taiwan to China amounted to US$30.55 billion, accounting for 33.69 percent of the nation's total exports.

Furthermore, Schive Chi (薛琦), president of the Taiwan Academy of Banking and Finance (台灣金融研訓院), said that economic growth will not help to alleviate the high jobless rate, which has been hovering around 5 percent since the end of last year.

"High-tech sectors such as TFT-LCD, semiconductors and optoelectronics that are expected to boom next year will not provide as many jobs as labor-intensive industries," Schive said.

As a result, Steve Lin (林祖嘉), an economics professor at National Chengchi University, suggested the government invest more in the service sector. Allowing Chinese tourists to come to Taiwan is one of the solutions, which Lin said will create considerable job opportunities and spur local consumption.

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