Wed, Jul 30, 2008 - Page 12 News List

TIER lowers GDP growth forecast

By Crystal Hsu  /  STAFF REPORTER

The Taiwan Institute of Economic Research (TIER, 台經院) lowered its forecast for the nation’s GDP growth yesterday to 4.27 percent from its estimate of 4.3 percent in April on concerns that tough inflation and the drop in real wages would prompt consumers to cut spending during the rest of the year.

The Taipei-based institute urged the government to base its plan for the nation’s economy on lowering carbon emissions to curb inflation stoked by soaring imported fuel and raw material costs.

Chen Miao (陳淼), a TIER researcher, told a media briefing the institute adjusted its GDP growth projection slightly downward as it expected consumers would exercise restraint in the face of rising inflation, while wages remain unchanged.

“Inflation is definitely a headache” Chen said. “But the fact that nominal wages have climbed at an imperceptible pace in recent years aggravates the problem.”

According to the Directorate General of Budget, Accounting and Statistics, real wages declined by a record 2.01 percent in the first five months of this year — with nominal wages edging up 1.58 percent and inflation gaining 3.66 percent.

As private consumption accounts for 54 percent to 55 percent of GDP, the think tank voiced worries about the trend, which is unlikely to let up before the end of this year.

The institute put yearly inflation at 3.45 percent, saying wholesalers and retailers would refrain from passing growing costs on to consumers for fear of hurting sales.

TIER president David Hong (洪德生) said robust exports would continue to sustain the economy even though a global slowdown had weakened demand from the US.

The institute predicted that annual exports would rise 13.37 percent while imports accelerate at a quicker pace of 15.86 percent, leaving a projected trade surplus of US$25.63 billion.

“The showing is not bad for an economy that grew 5.72 percent last year, raising the bar of comparison,” Hong said.

However, the TIER report showed an increasing number of manufacturers and service providers were pessimistic about the business climate for the rest of the year.

The number of manufacturers bearish about their business prospects rose to 27.3 percent last month, up from 19.8 percent a month earlier, the report said, citing concerns about incessant increases in raw material prices.

Meanwhile, the institute took 8.41 points from its business climate indicator for the domestic service industry that stood at 114.2 points last month, down from 122.61 points.

Chen Shih-hau (陳詩豪), deputy director of energy studies at TIER, said it was time the government developed a national economic policy centered on lowering carbon emissions to ease dependence on imported oil and help fight global warming.

To that end, the government should overhaul tax and trade laws to encourage energy conservation as well as research and development of supporting technology, Chen Shih-hau said.

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