CIER expects slower growth

The Chung-Hua Institution for Economic Research (CIER, 中經院) yesterday revised its forecast for the nation's economic growth this year to 4.05 percent, down from 4.37 percent predicted at the end of last year, citing weakening export momentum due to the slowing global economy.

The forecast is in line with Academia Sinica's prediction, and the lowest among various research institutions. The highest projection is 4.62 percent, by the Chung-Hua Institution for Economic Research (台經院), while the government's statistics bureau predicts GDP growth to fall to 4.21 percent.

Affected by high prices for raw materials -- mainly oil -- export growth is projected to fall to 4.89 percent, down from 15.27 percent last year, with imports to shrink from 18.56 percent growth last year to 3.8 percent this year, according to a report released by CIER yesterday.

"The huge decline will influence companies' investment decisions, which could increase by 7.3 percent this year, down from 15.4 percent last year," said Chou Ji (周濟), director of CIER's center for economic forecasting, at the press conference.

While raw materials prices have shown no sign of easing, prices of exports are also declining because of competition and the rising New Taiwan dollar, which has cut local manufacturers' margins, Chou said.

CIER predicts that the nation's currency will gradually climb to NT$31.31 against the US dollar by the end of the year, appreciating 6.32 percent from last year. The New Taiwan dollar yesterday traded NT$0.077 lower at NT$31.617 on the Taipei foreign exchange market.

Taiwan's economy will also be influenced if the Chinese yuan is revalued against the US dollar this year, given the massive migration of Taiwanese industries to China, the report said.

The yuan has been pegged to the greenback at about 8.28 for a decade.

Sophia Cheng (程淑芬), director of Merrill Lynch Taiwan Ltd, said that the yuan is under significant pressure for revaluation this year as foreign governments complain that the yuan's current value gives Chinese exporters an unfair advantage globally.

Merrill Lynch forecasts that the yuan will appreciate against the US dollar sometime this year, which would erode the profits of many listed companies that have relocated operations to China, according to Cheng.

Hwa Erh-cheng (華而誠), a senior researcher at Polaris Research Institute (寶華綜合經濟研究院) and also an economics professor at Shih Hsin University, however, said the Chinese authorities will not change their currency policy this year, even under the threat of the "Chinese Currency Act of 2005" filed by the US Congress early this month, which calls for a 27.5 percent tariff on Chinese imports if Beijing does not revalue its currency within 180 days.

"China still has a long way to go to carry out currency exchange reform, and thus is in no hurry to free float the Chinese yuan," Hwa said. "Beijing is also reluctant to do so given the massive inflow of speculative hot money."