Wed, Sep 21, 2005 - Page 10 News List

Growth will slow down, UBS says

By Amber Chung  /  STAFF REPORTER

The nation's economic growth is expected to maintain a slow pace through the next four to six quarters, because of the continuously tightening economic policies of the US and China, UBS Investment Bank said yesterday.

The macro-economic imbalances in the US and China are expected to continue next year and the two countries could stick to tightening their monetary policies, UBS' North Asia senior economist Duncan Wooldridge said at a forum in Taipei yesterday.

Therefore, UBS does not expect to see an increase in the nation's export momentum, which would not make for very good news in the next four to six quarters, according to the economist.

UBS predicted an economic growth rate of 2.9 percent for Taiwan next year, down from the estimated 3.1 percent this year.

Lowest

The Swiss securities house's growth estimate for this year is the lowest among all the official projections, compared with the government's prediction of 3.65 percent growth, the Taiwan Institute of Economic Research's (TIER, 台經院) 3.31 percent and the Chung-Hua Institute of Economic Research's (中經院) 3.8 percent.

Meanwhile, the nation's consumption growth next year is expected to shrink to 1.5 percent to 2 percent, about half the level of this year's 3 percent, Wooldridge said.

The nation's real household income increased by only 1 percent, which meant that the 3 percent growth in consumption was in part supported by consumer credit, the economist explained, adding that they have seen signs of declining consumer-credit levels, which would in turn depress consumption growth.

Jonathan Anderson, UBS' head of Asia Pacific Economics, said that China's strong but decelerating economic growth -- with a predicted growth rate of 8 percent next year, down from an estimated 10.9 percent this year -- would not necessarily lead to a "hard landing," citing the recovering construction sector, stable industrial production and sales as well as healthy inventory levels seen in that country.

Pain

But China's imports have been flattening, especially in midstream processed products like steel and electronics, which would cause pain for other Asian countries including Taiwan, Anderson said.

South Korea has overtaken Taiwan as China's second-largest source of imports in the first half of this year with imports of US$35.5 billion, compared with Taiwan's US$33.3 billion, according to data obtained from China Customs.

"Taiwan needs to redesign its trade policy," said TIER's deputy director of international affairs, Johnny Chiang (江啟臣).

With its small-scale domestic market, Taiwan should look outward like South Korea, which has adopted an aggressive trade policy to tap into other countries' markets, Chiang said.

Opening up is the best way to protect Taiwan's economy, he said, adding that direct links and further liberalization would not harm the nation but rather sharpen its competitive edge with a free flow of manpower and capital.

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