CIER casts a gloomy eye over economy

The Chung-hua Institution for Economic Research (CIER, 中經院) yesterday revised downward its economic growth forecast for the country this year, citing soft private consumption and investment.

The government-funded think tank cut its GDP forecast to 4.11 percent, down from the 4.17 percent prediction it made in April. It also revised its growth forecast for next year to 4.15 percent from the previous 4.18 percent.

"We expected the credit abuse storm to ease in the current quarter, but it seems the effect will drag on to the next quarter," Peng Su-ling (彭素玲), a CIER researcher, said at a press briefing yesterday.

"This, coupled with political instability, will curb private consumption," Peng said.

CIER trimmed the growth rate of private consumption by 0.85 percentage points to 2.27 percent.

CIER also said that political factors would influence private investment, and slashed its growth prediction from 4.06 percent to 2.14 percent.

With higher oil prices and utility rates, along with soaring vegetable prices during the typhoon season, it would appear difficult for the government to keep inflation under 2 percent.

Earlier this month, both state-run Chinese Petroleum Corp (中油) and private Formosa Petrochemical Corp (台塑石化) hiked their wholesale gasoline prices for the third time this year. On Thursday a Ministry of Economic Affairs committee approved an application to raise the price of natural gas by 15 percent.

The full-year consumer price index (CPI) is estimated to reach 2.19 percent, Chou Ji (周濟), director of CIER's economic forecast center, said at the briefing.

"If oil prices keep surging, the CPI may even exceed 3 percent," Chou said.

Recent political tensions in the Middle East have pushed crude oil prices to a record high of US$78 per barrel, but Chou said soaring demand from China and India would help keep prices at a high level.

Against this backdrop, CIER ran a simulation based on the following scenario -- that average crude prices for the next half of the year would ranged from US$65 to US$70 per barrel, the price of natural gas would rise by 15 percent and public transport fares would increase 6.95 percent, Chou said. The result was a higher CPI forecast of 3.02 percent and a lower GDP growth forecast of just 3.94 percent, Chou said.

Should oil prices reach US$80 per barrel next year, Taiwan's GDP growth would drop to 3.87 percent from the 4.25 percent that CIER has predicted, with the CPI shooting to 6.15 percent, Chou said.

Higher consumer prices are likely to trigger inflation, Chou said, adding that the central bank might have to raise interest rates to counter the price rise.

The central bank raised its benchmark interest rate for the eighth straight quarter by 0.125 percentage points on June 29.