The economy accelerated its expansion in the first quarter, prompting the Chung-hua Institution for Economic Research (CIER, 中經院) to raise its economic forecast for the year. However, the institution warned that actual expansion may fall short of the prediction should oil prices keep rising.
CIER revised its GDP growth forecast to 4.17 percent this year, up from its previous prediction of 4.01 percent made in December. Owing to robust exports in the first quarter. GDP growth in the first quarter stood at 5.39 percent.
"The main growth momentum is still coming from the export sector. Our major export markets, including China, the US and Japan, are showing signs of an upturn," Chou Ji (周濟), director of CIER's economic forecast center, said at a press conference yesterday.
The biggest threat to the economy is surging oil prices, which may cut the value of net exports and further drive up consumer prices, Chou said.
The research institute expects the full-year consumer price index (CPI) to rise 1.82 percent from a year ago, but as the prediction was made before the 8 percent hike in retail gasoline prices on Wednesday and Thursday, the actual CPI may be higher.
Liang Kuo-yuan (梁國源), president of the Polaris Research Institute (寶華經濟研究院), said he expected pump prices to rise further as tension mounts between the US and Iran. The rising oil price, along with the expected hike in electricity rates before summer, may push the CPI above 2 percent this year, Liang said.
Another variable is private consumption, which has been constrained by the spiraling consumer debt problem incurred from the abuse of credit and cash-advance cards, Chou said.
CIER forecast that private consumption would climb by only 3.12 percent this year.
But the local stock market has performed well, soaring above 7,000 to reach its highest point in two years, consumers may spend more in the second half of the year, which could improve private consumption figures, Chou said.
One potential spur to the economy is the pending liberalization of tourism from China, said Jeff Lin (林建甫), an economics professor at National Taiwan University.
"The issue became a hot topic again when former Chinese Nationalist Party (KMT) chairman Lien Chan (連戰) visited Chinese President Hu Jintao (胡錦濤), but it seems that expectations will fall again in light of the government's ambiguous attitude," Lin said.
The local tourism industry predicted that spending by Chinese tourists may reach as high as NT$30 billion (US$928.8 million) per year.
As for the exchange rate of the New Taiwan dollar, CIER estimated that the local currency depreciated slightly against the US dollar to NT$32.22 in the first quarter. It is expected to trade at NT$32.23 for the whole year, down 0.15 percent from last year.
The job market will improve following the economic expansion, with the unemployment rate likely to fall from 4.13 percent last year to 3.74 percent this year, CIER said.