Wed, Jan 26, 2005 - Page 10 News List

TIER raises growth forecast slightly

ECONOMY The institute raised expectations for this year by a hair, and while imports and exports are expected to fall, private investment should help to sustain growth


With consumer spending expanding more quickly than expected, the Taiwan Institute of Economic Research (TIER, 台經院) yesterday raised its economic growth forecast slightly, from the 4.62 percent estimated last month to 4.67 percent for this year.

"Although GDP growth this year can't ... reach the high level reported last year, it is moving at a normal and stable pace," TIER president Wu Rong-i (吳榮義) said at a press conference yesterday.

In line with the strong global recovery, Taiwan saw robust economic growth of 5.99 percent last year, according to the Directorate General of Budget, Accounting and Statistics. TIER estimates the figure may even have reached 6.17 percent.

Unstable oil and raw material prices, rising interest rates and China's macroeconomic control policy clobbered the global economy in the second half of last year. These will continue to drag on growth this year and influence the export-dependent local economy, adding inflationary pressure, Wu said.

TIER predicts that the growth of exports will shrink from 20.71 percent last year to 12.1 percent this year, with import growth also sinking from 31.94 percent to 14.8 percent.

Although major private investment such as the construction of 300mm wafer factories and several thin-film-transistor liquid-crystal-display (TFT-LCD) plants will expand production capacity, declining demand and oversupply of these information technology products will further curb growth momentum, Wu said.

As for interest rates and the exchange rate, Wu said the central bank may raise interest rates if the US Federal Reserve hikes its rates again, but the range will not be high enough to offset growth. The exchange rate will certainly go up, Wu said, as the US is seeking to resolve its huge deficits.

As a result, TIER predicts the overnight interbank rate will rise to 1.79 percent from the current 1.75 percent, while the New Taiwan dollar may appreciate by NT$2.08 to NT$31.65 against the greenback by the end of this year.

As for when Beijing will float its currency, Wu said the timing and range are still difficult to predict.

Another concern for economic growth is inflation, which may occur if prices for oil and raw materials rise again, Wu said. The consumer price index, which currently stands at 1.62 percent, may rise to 1.87 percent by year's end, Wu said.

Fortunately, growth in private consumption is estimated to be 2.58 percent, down from 3.06 percent last year, a comparatively small decline that will help considerably in sustaining economic expansion, Wu said.

The less-positive outlook is reflected in the outlook of some local manufacturers. A poll by TIER found that only 19.4 percent of manufacturers believe the economy will improve within the next three months, down from 20.2 percent in a poll last month. Further, 15.3 percent of those polled said the economy will see a downturn in the period, down from 18.1 percent previously, while 65.3 percent think the economy will remain at the current level.

With the new Cabinet led by Frank Hsieh (謝長廷) to assume office next month, Wu said there should be no drastic changes in economic policy.

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