A global economic slowdown coupled with lower consumer spending prompted a local economic think tank yesterday to lower its GDP growth forecast to 4.5 percent for this year, down from a 4.67 percent forecast in April.
The Chung-Hua Institution for Economic Research (CIER, 中經院), which publishes its findings on the economy quarterly, also sounded an alarm on inflation, noting that the consumer price index (CPI) reached 4.19 percent for the first six months, its highest level in 13 years.
The Taipei-based institute forecast an inflation rate of 3.66 percent for this year and said containing inflation was the toughest challenge facing the new government.
Wang Lee-rong (王儷容), director of CIER’s Center for Economic Forecasting, said the institute decided to adjust its GDP growth prediction downward by 0.17 percentage points after factoring in soaring fuel and raw material costs.
“The nation will continue to post economic growth in the second half of this year, driven chiefly by the government’s stimulus package,” Wang said, referring to the NT$130 billion (US$4.28 billion) spending program to expand domestic demand.
On Thursday the legislature approved the special budget that the Cabinet said would be implemented before the end of this year to raise annual GDP growth by 0.45 percent.
Wang said the program would quickly have a positive effect on the economy, unlike the lifting of restrictions governing investment in China that would take a longer time to bear fruit.
Nevertheless, CIER predicted GDP growth would slip to 3.74 percent and 3.87 percent in the third and fourth quarters respectively. The figure hit 6.06 percent for the first quarter and is estimated to dip to 4.44 percent in the second quarter, the report said.
Wang said inflation was bound to dampen demand from around the world, including China and the US, Taiwan’s two largest trading partners.
“Mounting inflationary pressure will pose the biggest challenge for the government in its attempt to invigorate the economy,” Wang said, noting that rising fuel and food costs have led consumers to rein in spending.
Daigee Shaw (蕭代基), president of CIER, warned that people would need to change their lifestyles as crude oil prices would continue to rise to US$200 or even US$300 a barrel. CIER forecast the local currency would trade at an average of NT$30.49 against the US dollar this year, appreciating 7.16 percent from last year. In Taipei trading yesterday, the NT dollar closed NT$0.001 lower at NT$30.36 versus the greenback.
Looking ahead, the NT dollar will gain another 4.01 percent to trade at NT$29.27 on average against the US dollar next year, as the greenback will still be under pressure because of the US economic slowdown, the report said.
CIER’s revised GDP forecast was lower than the government’s official forecast of 4.78 percent, the Taiwan Research Institute’s (台綜院) 4.68 percent forecast and Polaris Research Institute’s (寶華綜合經濟研究院) 4.6 percent.
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