The expected influx of Chinese tourists and increased government spending on infrastructure projects will expand domestic demand and accelerate the nation's economic growth this year, despite slackening exports caused by a global economic slowdown, a local economic research team predicted yesterday.
The Taipei-based Polaris Research Institute (寶華綜合經濟研究院) updated its forecast of key economic indicators and raised the economic growth rate for this year from 4.35 percent to 4.6 percent. The institute also put the yearly inflation rate at 3.44 percent, up from the 3.23 percent estimated in March.
In light of rising fuel and raw material prices and the central bank’s bid to help rein in inflation, the institute expects the local currency to trade at an average of NT$30.3 against the US dollar for the year. The NT dollar closed at NT$30.38 versus the US currency yesterday, data from Taipei Forex Inc showed.
“The government’s stimulus package and eased cross-strait travel restrictions will help boost domestic demand that will replace exports as the biggest driver of Taiwan’s economic growth in the second half of the year,” Liang Kuo-yuan (梁國源), president of the institute, said at a media briefing.
The Chinese Nationalist Party (KMT) administration has proposed a special budget totaling NT$130.1 billion (US$4.28 billion) to finance public works projects. In addition, it has inked a pact with China allowing a maximum of 3,000 Chinese tourists to visit Taiwan a day, starting on July 18.
The two measures, Liang predicted, will encourage private consumption and boost investment growth, which will positively impact the economy in the third and fourth quarters.
“Domestic demand will account for 54.68 percent of the GDP formation in 2008, while net exports will contribute the remaining 45.32 percent,” Liang said.
Polaris’ GDP forecast is lower than the national statistic agency’s 4.78 percent, the Chung-Hua Institute for Economic Research’s (中經院) 4.67 percent and the Taiwan Research Institute’s 4.68 percent forecast.
Liang said that exports, normally the main source of economic growth, remained robust in the first quarter but would show flagging signs in the second half of the year because of the slowdown in the US economy and the appreciation of the NT dollar.
Liang said he expected the central bank to raise the benchmark interest rate by a modest 0.125 percent at its board meeting today to help slow inflation.
It would be the central bank’s 16th consecutive quarterly rate hike, beginning in October 2004.
Liang said the inflation issue should not be taken lightly, noting that the core consumer price index, which excludes volatile fuel and food prices, has hovered above 3 percent for the past three months, the highest in nine years.
The inflationary pressure, he forecast, would last into the third quarter as the government is due to hike fuel electricity rates next month and raise oil prices every month if crude costs continue climbing.
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