The Taiwan Institute of Economic Research (TIER,
"The government's five-year, NT$500 billion public construction package, once it begins, is expected to contribute to the nation's GDP by one percentage point each year," TIER president Wu Rong-i (吳榮義) said yesterday morning.
Wu reiterated that, given the nation's economic fundamentals, Taiwan should have the potential to achieve annual GDP growth of more than 5 percent.
To maintain this level of economic growth, a pick-up in global demand, including increased orders from the US and Japan to spur export growth, will be necessary, Wu said, adding that China's market hasn't yet matured.
With the nation's export strength continuing to gain steam, Taiwan's GDP is expected to grow 4.62 percent next year, Wu said last month.
The signs of recovery in Tai-wan's industrial production and export sector spurred Goldman Sachs to revise upward its economic forecast for the nation yesterday.
"Taiwan's economy is set to fire on all cylinders," Grace Ng, an associate economist at Goldman Sachs said in a written report.
"We revised upward our Taiwan GDP growth forecast for 2004 to 5.8 percent from 5 percent and continue to highlight the potential significance of domestic demand recovery, in addition to a buoyant external sector, going into 2004," Ng added.
Goldman Sachs based its assumption on October's export orders, which rose 19.9 percent from October last year to reach another record monthly high, and a sharp pickup in export orders from the US.
The US investment bank said that Taiwanese exporters, especially in the information-technology and electronic sectors, are sure to benefit from the growing momentum in the US economy after sluggish growth since the beginning of the year.
However, Taiwanese companies have yet to feel the fruits of increased demand, with the business climate index falling 114.91 points last month, down 1.89 points from the month before.
According to TIER's survey, 86.8 percent of local companies said business conditions in October remained stable, while 13.2 percent -- higher than September's 9.7 percent -- said they were pessimistic.
Nevertheless, 92.6 percent of polled businesses expressed optimism about business conditions over the next six months.
Wu explained that the decline in last month's business climate and business confidence was reasonable since the index reached a 24-year high in September.
In addition, he said that rising trade protectionism in the US, turmoil in Iraq and recent bombings in Istanbul, which suggest terrorist activities haven't been brought under control, attributed to the nation's declining business confidence.
Since interest rates in England and Australia were raised, local businessmen also felt uncertain about the possibility of local interest rate rises.
Wu, however, said that local interest rates may not rise quickly until early next year since central bank officials obviously plan to maintain low interest rates and prevent the New Taiwan dollar from appreciating until the local economic recovery further consolidates.
"The impact shouldn't be too much since the pace at which interest rates will climb will be mild," Wu said.
Wu also dismissed growing concerns over the nation's rising deflationary pressures, saying, "If the recovery is sustainable, the local deflationary pressures will subside."
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