Sat, Sep 10, 2005 - Page 10 News List

Economists optimistic about year's second half

By Jackie Lin  /  STAFF REPORTER

Taiwan will benefit from the US' recovering information-technology (IT) sector, which will drive improved economic performance in the second half of the year, although rising oil prices and the slowdown of China's imports will hamper growth, economists at UBS AG said yesterday.

"We forecast that Taiwan will achieve a moderate 3.4 percent growth rate this year, and its stable economy with rising domestic demand represents long-term potential," Pu Yonghao (浦永灝), UBS' head of Asia research, said at a media briefing.

However, as exports and production are decelerating, Pu suggested that Taiwan increase exchanges with China to boost local consumption.

The nation's exports in the first eight months of the year rose 6.7 percent year-on-year to US$120.95 billion, while imports increased 11.2 percent to US$119.78 billion, leaving a trade surplus of US$1.17 billion, down 79.1 percent from a year earlier, the Ministry of Finance reported earlier this week.

A declining surplus suggests more money is flowing out as the NT dollar gets sold for other currencies. But the undervalued New Taiwan dollar would appreciate by 3 to 5 percent in the next six months, as opposed to a slower appreciation of 3 to 5 percent of the Chinese yuan in the next 12 to 24 months, Pu said.

As the government is conducting a program of financial reform to streamline the financial sector, Pu said financial stocks will be a favorable investment target.

Klaus Wellershoff, chief economist and head of wealth management research, said that inflationary pressure will escalate at a gradual, mild pace over the next 18 months, driven by the rising oil prices, prompting central banks to hike their short-term interest rates.

But as oil prices are pushed up on the back of increased demand, rather than a supply shortage as seen in the previous financial crisis, such price hikes are not expected to drag down the global economy.

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