Domestic demand seen boosting the economy

The economy is set to fare better than expected this year thanks to growing domestic demand, supported by gains in the equity market and a faster recovery of the property market, analysts said.

The economy should also benefit from more exports, particularly of information technology products, to the US where solid demand is expected on the back of a continued economic recovery, they said.

Analysts expect the Directorate General of Budget, Accounting and Statistics (DGBAS) to raise its GDP growth forecast for this year toward 4.8 percent when it reports economic data for the fourth quarter of last year on Friday.

Major economic forecasters have already come up with a consensus ahead of the DGBAS revision that a further hike is warranted. The semi-official Chung-Hua Institution for Economic Research (中華經濟研究院 ) raised its GDP forecast to 4.26 percent from 4.01 percent.

The private Taiwan Institute of Economic Research (臺灣經濟研究院) gave an even more upbeat assessment, raising its forecast to 4.81 percent last month from the previous estimate of 4.62 percent given last November.

Taiwan Securities Co (台証證券) is now tipping 4.6 percent GDP growth, up from 4.1 percent late last year, said analyst Forest Chen.

He said the bulk of the expansion is likely to come from higher demand thanks to strengthening equity and property markets this year.

"Government support [of the markets] has played a key role in this regard, a phenomenon not uncommon ahead of major polls, in this case Taiwan's presidential election on March 20," he said.

An analyst with a domestic investment advisory company said a hike in the DGBAS' GDP forecast to 4.5 percent to 4.8 percent is justified, as the current improvement in the global marketplace should be able to provide the required impetus.

"The US economy promises to do well this year, a prospect that has helped fuel expectations of an earlier-than-expected rate hike in the first half," the analyst said.

Nevertheless, possible appreciation of the Chinese yuan and regional currencies, including the New Taiwan dollar, will add uncertainty to the assessment of the country's economic performance this year.

The NT dollar's rise may attract more foreign capital and inspire equity gains, but will almost certainly undermine outbound shipments, the lifeline of most informa-tion technology companies here, they said.

Citigroup Taiwan economist Cheng Cheng-mount (鄭貞茂) remains cautious, though his house sees room for raising its GDP growth forecast from the current 4.4 percent.

"I will keep a sceptical eye on the justifiability of a hike to 5 percent," Cheng said.

He warned that a further appreciation of the NT dollar would hit exports.

"The influx of hot money and equity gains will certainly fuel more private consumption, but the impact on exports ... should not be underestimated," he said.