Sat, Dec 13, 2008 page12

• Academia Sinica releases GDP forecast

  STEEP DECLINES Researchers believe that exports, which account for 60 percent to 70 percent of GDP, will post negative growth for the first three quarters of next year

  • By Crystal Hsu / STAFF REPORTER
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  Academia Sinica, Taiwan’s top research institute, yesterday unveiled its forecast for the nation’s GDP growth at a seven-year low of 0.56 percent next year, a showing that could prove generous if the government fails to carry out stimulus measures promptly and effectively.

  The institute also sounded the alarm for deflation risks if the economic downturn drags on and authorities continue to ease monetary policy to no avail.

  “GDP growth is expected to gain a meager 0.56 percent next year, the lowest since 2002,” Wu Chung-shu (吳中書), an economic research fellow at the institute, told a media briefing. “Government spending would replace exports to sustain the economy that has fared worse than expected in the wake of the spiraling financial storm.”

  The institute, which in July raised GDP growth for this year from 4.31 percent to 4.55 percent on robust export expansion, said the figure would slow to 1.72 percent on steep declines in outbound shipments.

  The GDP projections for this year and next are both lower than the government’s estimate of 1.87 percent and 2.12 percent, respectively.

  “The financial crisis is wreaking havoc on the world economy beyond imagination and exporters like Taiwan are particularly vulnerable,” Wu said, noting that overseas shipments accelerated 11 percent in January but turned to contract 23.3 percent last month because of weakening global demand.

  Exports, which account for 60 percent to 70 percent of GDP, are forecast to post negative growth for the first three quarters of next year, prompting the government to introduce a spate of stimulus measures, including the consumer voucher program, Wu said.

  Without the stimulus, the GDP growth would likely drop by up to 2 percent next year, the economist said. He voiced skepticism about the prospect of the spending plans, saying they tend to fall prey of partisan rivalry, legal barriers and poor coordination between central and local governments.

  The government says the voucher program will raise the GDP by 0.64 percentage points next year with public works projects and Chinese tourists to contribute an extra 0.53 and 0.5 percentage points each.

  Wu said the nation’s heavy dependence on cross-strait trade may slacken next year as China battles its own economic slowdown.

  Despite stimulus measures, Wu said it remained to be seen if domestic financial and manufacturing sectors can emerge from the external economic shocks unscathed.

  “With poor visibility, no one can tell for sure when the economy will start to recover,” Wu said. “Some say the downturn will subside in the second quarter of next year. Others say it may persist.”

  An increasing number of firms opted for closures while others cut staffers and salaries to weather the recession.

  The central bank has cut interest rates by a total of 1.625 percentage points since September to ease the financial burden on companies and homeowners.

  Wu said that while loose monetary policy is helpful, it may raise the specter of deflation and hamper consumer spending if people expect commodity prices to fall.

  “The risk of deflation is there even though government agencies seek to dismiss it,” the academic said.

  The institute projected the consumer price index would gain 0.17 percent next year, lower than the 0.37 percent forecast by the government. Wu said the central bank would further cut rates in the first half of next year if major economic pointers fail to pick up.

  The New Taiwan dollar is predicted to trade at an average of NT$33.31 against the greenback, the research body’s report showed.

  Wu said he believed a weak NT dollar is in the nation’s interest, both to avert deflation and boost exports.

  Academia Sinica’s GDP growth forecast is also lower than Standard Chartered Bank’s estimate of 0.7 percent, Citigroup’s 1.5 percent and BNP Paribas’ 2 percent. It is also lower than Chung-hua Institution for Economic Research’s (中經院) 1.24 percent prediction and the Economist Intelligence Unit’s 1.3 percent.
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