Sat, Oct 18, 2008 page12

• Local think tank trims GDP forecast

  CIER urged the government to focus more on stimulating domestic demand instead of exports to help the country weather the global financial storm

  SLOWDOWN

  • By Crystal Hsu / STAFF REPORTER
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  A global slowdown complicated by the credit crisis at major US and European banks prompted a local economic think tank yesterday to trim its GDP growth forecast this year for a second time to 3.82 percent.

  The Chung-Hua Institution for Economic Research (CIER, 中經院), which advises the government on major policy issues, adjusted downward projected GDP growth from the 4.5 percent it estimated in July, Wang Lee-rong (王儷容), director of the institute’s Center for Economic Forecasting, told a media briefing.

  In April, the research body put the figure at 4.67 percent after the nation posted robust growth of 6.25 percent in the first quarter. However, growth slid to 4.32 percent in the second quarter.

  Wang attributed the downward shift to sustained international economic weakening that has dampened demand for consumer and communications products made by Taiwanese firms.

  The stimulus package introduced by the government has yet to contribute to expansion of domestic demand as hoped, Wang said.

  “GDP growth is likely to drop to 2.41 percent in the third quarter, dragged down by shrinking consumer spending and turmoil in the equities market,” Wang said. “We expect the economy to grow by 2.52 percent in the last quarter when the stimulus package starts to bear fruit.”

  CIER researcher Peng Su-ling (彭素玲) said inflation was forecast to reach 3.73 percent this year, a figure that still causes concern, though the pressures have eased compared with the summer.

  Peng said the local currency would trade at a yearly average of NT$31.06 against the greenback, up NT$1.78 from last year. She put the average exchange rate at NT$31.19 and NT$31.08 in the third and fourth quarters respectively.

  Against this backdrop, Peng said it was unlikely the central bank would lower interest rates again this year.

  “I believe the top duty of the monetary regulator is to fight inflation although it has shown keen concern for economic growth,” she said. “Chances are the central bank will adopt a neutral stance as consumer prices remain relatively high.”

  CIER is more pessimistic about the economic outlook next year when growth is expected to slow to 3.34 percent and unemployment to rise to 3.94 percent.

  Wang said the government should shift its attention from boosting exports to stimulating domestic demand to help the country better weather the global slowdown and credit crunch.

  “There is little the government can do to stem the international financial tumult,” Wang said. “But it can take steps to encourage private investment and consumption — a campaign that promises better success.”

  Hsu Chih-chiang (徐之強), an economics professor at National Central University, said past economic downturns averaged 16 months, with the exception of the 1982 energy crisis, which sank the world economy for 37 months.

  A solid sign of economic recovery is for the leading cyclical indicators to gain points for four consecutive months, Hsu said, forecasting that the economy would touch bottom next July or August.

  The institute’s revised GDP forecast was lower than the government’s forecast of 4.3 percent, the Taiwan Institute of Economic Research’s (台經院) 4.27 percent and Polaris Research Institute’s (寶華研究院) 4.1 percent.
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