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Economics institute trims GDP forecast

Economists at the Academia Sinica, the nation's top research institute, yesterday revised downward their forecast for the nation's economic growth this year, citing weaker-than-expected domestic demand in spite of robust exports.

The Institute of Economics of the Academia Sinica cut its GDP growth forecast for this year to 4.13 percent this year -- down from the 4.25 percent estimate it made last December.

"The downward adjustment was made in light of weak private consumption and investment in the face of an uncertain global economic outlook and domestic political noise," Wu Chung-Shu (吳中書), a research fellow at the institute, told a media briefing yesterday.

The annual growth in private consumption is expected to drop to 2.44 percent this year, down from 3 percent last year, while that of private investment may improve to 0.08 percent from minus 1.3 percent over the same time, according to the institute's figures.

However, exports are expected to remain strong this year with a forecast growth rate of 9.42 percent year-on-year, up from 8.8 percent last year, it said.

Despite the cut, the institute's latest economic forecast is still at the higher range of GDP estimates made by several financial houses and research institutes.

Taipei-based think tank Taiwan Research Institute (台綜院) on Tuesday said it expected the nation's GDP to rise 4.18 percent this year, while Goldman Sachs said in a report released on Monday that it was maintaining its 4.2 percent growth forecast for this year.

Earlier this month, Lehman Brothers trimmed its GDP forecast for Taiwan this year for the second time to 3.5 percent from 4 percent, but Standard Chartered Bank on June 21 upgraded its forecast for this year from 3.3 percent to 3.8 percent.

For the current quarter, the institute predicted GDP growth would slow to 4.59 percent year-on-year from 4.93 percent in the first quarter.

The nation faces no immediate inflation risk as the institute said it expected growth in the consumer price index (CPI) this year to slide to 1.68 percent from 2.3 percent last year.

Despite high oil prices and the scheduled rise in power rates tomorrow, weak domestic demand would constrain consumer prices, Wu said.

Wu said the central bank will continue to raise interest rates in a bid to narrow the spread with the US and to bring real interest rates back to positive after factoring in inflation. Against this backdrop, the New Taiwan dollar is expected to trend upward to NT$32.39 against its US counterpart by the end of this year, he said.

Looking ahead, the institute said that uncertainties such as international oil prices, global interest rates, the US economy, cross-strait relations and domestic politics could affect the nation's economy.

Crude oil prices could rise 14.8 percent year-on-year to average US$61.25 per barrel this year, the institute said, citing the IMF's World Economic Outlook forecasts released in April.
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