The Chung-Hua Institution for Economic Research (CIER, 中經院) said yesterday it expected the economy to contract by 3.72 percent this year, compared with the 3.56 percent it projected in July, as the pace of recovery has proven slower than expected.
However, the think tank, which advises the government on major policy-making, expects GDP to return to healthy growth of 4.65 percent next year, on stronger-than-expected external demand.
“Despite improving signs, the economy turned out weaker than expected in the second quarter and dipped further because of Typhoon Morakot in the third quarter,” Wang Lee-rong (王儷容), director of the institute’s center for Economic Forecasting, told a media briefing.
The institute nudged up its estimate for GDP growth for this quarter to 5.31 percent, from 4.48 percent forecast three months ago, owing to faster improvement in the global economy.
Private investment is expected to shrink 24.8 percent this year, making it the biggest drag on the economy, the report said. The component is forecast to recover to 8.16 percent growth next year.
Hsu Chih-chiang (徐之強), an economics professor at National Central University, said robust economic growth would remain untenable as long as private investment stays sluggish.
“It will be a major challenge for the government to direct idle funds to real investments as it attempts to spur economic growth,” Hsu said.
The CIER report said exports are expected to drop 11.38 percent this year and expand 9.72 percent next year, with consumer prices dipping 0.63 percent this year and edging up 0.78 percent next year.
Unemployment, which hit a record high of 6.13 percent in August, is expected to average 5.88 percent this year and 5.76 percent next year.
CIER researcher Peng Su-ling (彭素玲) said the job market would remain tough.
The proposed economic cooperation framework agreement with China will add uncertainty, as some sectors will gain job opportunities while others will lose more, depending on the terms and industrial adjustment, she said.
The local currency is expected to trade at an average of NT$33 against the US currency this year and rise to NT$31.83 next year, as demand for the greenback will weaken further owing to oversupply, CIER said.
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