Fri, Jul 29, 2005 - Page 10 News List

Growth forecast lowered again

SCALED DOWN Slower-than-expected growth in the first half, marked by sluggish trade, prompted the TIER to lower its growth forecast to 3.31 percent on the year


Dragged down by the slow economic growth in the first two quarters, the Taiwan Institute of Economic Research (TIER, 台經院) yesterday slashed its GDP growth forecast of the year for the second time from 4.41 percent to 3.31 percent.

The TIER estimated that the GDP growth for the first and second quarters would be 2.54 percent and 2.06 percent respectively, mainly because of the decline in exports during this period. The first time the TIER cut is GDP forecast for the year was in April, when it lowered its forecast from 4.62 percent to 4.41 percent growth.

For the first six months of the year, Taiwan's exports reached NT$2.819 trillion, and imports amounted to NT$2.815 trillion, making trade surplus NT$4.6 billion -- a 96.2 percent decline from the same period last year.

"The public should not panic, as Taiwan's economy remains stable with the [GDP] figure," said David Hong (洪德生), acting president of the TIER.

Hong explained that local manufacturers' orders grew by 10.86 percent to NT$3.67 trillion for the first half of this year from a year ago, although exports in the same period merely increased by 0.6 percent.

Hong said the discrepancy reflects an existing cross-strait business model -- taking orders in Taiwan and exporting from their factories in China -- a practice which has become popular among Taiwanese manufacturers in recent years.

As the US economy is recovering and China's economy remains red-hot, demand from the two largest markets is expected to boost Taiwan's exports in the second half of the year, Hong said.

The TIER predicted GDP growth in the third quarter would rebound to 4.16 percent, and further climb to 4.36 percent in the fourth quarter.

If the government's NT$80 billion flood prevention budget is passed by the legislature and is implemented in the fourth quarter, economic growth may reach 3.5 percent, Hong said.

But he said the impact would be marginal.

"Government spending can hardly boost the economy ? it is improvement in the investment environment that can create more business," Hong said.

The shrinking trade surplus, along with stagnant local consumption left the New Taiwan dollar with little room to appreciate, despite the recent revaluation of Chinese yuan, Hong said.

The TIER also predicted the local currency would go up from current level to NT$31.64 against the US dollar by the end of the year.

Local manufacturers are upbeat about the economic outlook in the next half of the year, making the manufacturing climate index rise to 95.83 points last month from 92.47 points in May, according to a poll conducted by the research institution.

Manufacturers optimistic about the economy for the next six months surged to 40.1 percent from 20.3 percent in May, while those who are pessimistic dropped to 12.7 percent from 19.2 percent.

The index for the service sector, however, dropped slightly to 112.89 points in June from 114.54 points in the previous month. The decline is attributed to high oil prices in the transportation industry, said TIER researcher Chen Miao (陳淼).

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