Global trade is expected to slow next year, significantly affecting the growth of export-driven nations such as Taiwan, Robin Bew, the chief economist with the Economist Intelligence Unit (EIU), said at a Taipei press conference yesterday.
Bew forecast that within the next 18 months the global economy will gradually decelerate due to high oil prices, US consumers will start to feel the burden of heavy debts and domestic demand will become the focus worldwide as global trade is losing momentum.
Bew was in town as part of an tour of Asia to issue the EIU's global economic trend report for next year. This trip will also take him to Hong Kong, Japan, China and Singapore.
According to the EIU's forecasts, global economic growth will slide to 4.2 percent this year and 4.0 percent next year, compared with a high of 5.1 percent last year.
China's GDP growth is expected to hit 9.5 percent this year, Bew said, despite Beijing's efforts to rein in its overheating economy. The Chinese yuan will gradually climb by 5 percent within one year, he estimated.
China's automotive, steel and cement sectors run the risk of building too much capacity -- which would lead to dwindling profits, debt and even corporate bankruptcy and recession -- if the government fails to further slow investment.
Beijing should shift its focus from corporate investment to consumer demand as a growth driver, he said.
As China's demand for imports is falling, this is expected to hurt Taiwan, with the nation's economy expected to slow at a similar pace to the global economy.
The other challenge facing Taiwan, according to Bew, is the squeezed margins and cutthroat price competition in the electronics sector.
Bew said India must deal with its bureaucracy and increasing government debt as the nation is becoming the next engine, together with China, driving the global economy.
Asked about the impact of Hurricane Katrina, Bew said that besides the political fall-out for US President George W. Bush and reduced economic activity in the flooded areas, the tragedy should have limited impact on oil prices in the long run as Louisiana's oil output is small.