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Think tank upgrades the nation's growth forecast

A think tank yesterday revised upward its economic growth forecast for the country, citing robust investment and exports.

The Taipei-based Taiwan Research Institute (台綜院) revised the nation's GDP growth to 4.18 percent, up from last year's forecast of 4.04 percent, the institute said at a press briefing.

Despite the gains in trade and investment, shrinking private consumption caused by tightening consumer credit, increasing interest rates and an upsurge in prices will seriously influence the nation's economy in the second half of the year, said Liu Tai-ying (劉泰英), president of the institute.

Private consumption had been growing by an annual average of 5 percent to 6 percent, but dropped to 3 percent last year and may reach only 2.51 percent this year, Wu Tsai-yi (吳再益), vice president of the institute, added.

The latest bout of credit tightening by banks, which has occurred because of the overuse of credit and cash-advance cards by consumers, is expected to reduce consumption by 0.3 percent, and cut 0.1 percent to 0.5 percent from total GDP growth this year, Wu said.

Wu said the institute predicts the consumer price index (CPI) will rise by 1.91 percent this year. This forecast is the highest among the nation's research institutions.

The government hopes to keep the CPI to under 2 percent.

Goldman Sachs said in its latest report that it will retain its original 4.2 percent GDP growth forecast for Taiwan this year, and 4.5 percent for next year, despite a possible slowdown in the US economy.

"While the slower US consumption cycle poses more downside risks to Taiwan's export cycle, we believe the Taiwan economy should be able to weather a US slowdown better than the experience during the IT bubble in 2001," Goldman Sachs said in the report.

Goldman Sachs cited three points to support its view: increased demand from other parts of the world, especially Asia, recovery in the domestic sector and encouraging policy initiatives in the pipeline.

In related news, the nation's economy continued to grow steadily last month, maintaining solid progress since last August, the Council for Economic Planning and Development said yesterday.

Under a regular monitoring system on key indicators, the economy scored 24 points in May, up from a revised 23 points in April to signal a "green light" for steady growth, the council said.

The council's main index -- comprising seven indicators including wholesale prices and export orders received by the manufacturing industry -- is designed to measure Taiwan's economic activity three months in advance.

The council uses a five-level spectrum to gauge economic health, where blue is recession, yellow-blue is a slowdown, green indicates steady growth, yellow-red is a slightly overheating economy and red is an overheating economy.

The index of leading indicators for May stood at 109.7 points, up 1.2 percent from April, the council said.

The May index of coincident indicators, related to the current pace of economic activity, fell 0.4 percent month-on-month to 113.6 points, after posting a 0.8 percent increase in April.
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