The specter of recession looms larger and darker after a local think tank yesterday lowered its GDP growth forecast to 1.24 percent next year, because of an economic downturn spanning the second half of this year and the first half of next year on falling exports and listless consumer spending.
The Chung-Hua Institution for Economic Research (CIER, 中經院), which advises the government on major policy issues, also warned of deflation and surging national debts as the government seeks to turn the economy around by cutting taxes and spending more.
“The [domestic] economic picture looks increasingly gloomy and unpredictable in the wake of the global financial storm,” Wang Lee-rong (王儷容), director of the institute’s Center for Economic Forecasting, told a media briefing.
“Amid falling exports and consumer spending, we expect the GDP growth figure to drop to 1.68 percent this year and 1.24 percent next year with four consecutive quarters posting negative growth,” Wang said.
The estimation meant the nation would be officially in recession at the end of this month and would not emerge from it until the second half of next year, Wang said, conceding that research bodies worldwide have had difficulty grasping the severity and magnitude of the current financial crisis.
“What we know is that economic indicators continue to point down,” she said.
Consumer spending is expected to contract by 0.23 percent this year and put up a meager 0.73 percent growth next year, with the upcoming distribution of consumer vouchers expected to raise GDP growth by 0.64 percentage points, the CIER report said.
The report said national investment would decline 5.72 percent this year and expand 1.78 percent next year, thanks to bigger government borrowing to fund public construction projects.
Private investment was projected to sink 7.71 percent this year and 2.15 percent next year on falling external demand, the report said.
Wang Su-wan (王素彎), a CIER researcher, said the financial, electronics, airline and shipping industries were feeling the brunt of the recession, and the credit crunch was adding to their financial strain.
While supportive of the corporate relief plan, Wang said the government should avoid subjecting lenders to indiscreet loans that may cause harm to financial stability later.
The researcher also warned of escalating national debt, saying the total amount including hidden debts had already hit NT$14 trillion (US$41.79 billion) and the government was raising more to fix the economy.
The government will need NT$2.65 trillion to fund “Intelligent Taiwan” projects alone and is cutting assorted taxes to spur private economic activity.
To that end, CIER said that the central bank would further lower interest rates next week and again next year.
Wang Lee-rong said she expected the central bank to cut the discount rate by 25 basis points to 2.5 percent on Thursday.
“The central bank will have more room for rate cuts next year with the economy overshadowed by deflation,” she said. “We expect the consumer price index to dip 0.95 percent next year.”
The CIER forecast the NT dollar would trade at an average of NT$32.98 against the greenback next year and believed it was relatively strong compared with rival currencies, notably the South Korean won.
The institute put the unemployment rate at 4.06 percent this year and 4.35 percent next year.
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