The Chung-hua Institution for Economic Research (CIER, 中華經濟研究院) yesterday suggested that the government moderately expand public investments in the near future, after revising downward its forecast on economic expansion for this year and next year.
The Taipei-based think tank cut its forecast for Taiwan’s GDP growth for this year and next year to 4.4 percent and 4.07 percent respectively, down from the 4.58 percent and 4.15 percent it estimated in October.
The institution’s latest forecasts were both lower than those of the government.
Last month, the Directorate-General of Budget, Accounting and Statistics (DGBAS) cut its forecast on economic growth for this year and next year to 4.51 percent and 4.19 percent respectively.
CIER president Wu Chung-shu (吳中書) attributed the revisions to continuing weak sentiment about the global economy, mainly driven by the eurozone debt crisis.
“The slowing sentiment on the global economy may drag down Taiwan’s momentum in exports,” Wu told a media briefing.
The institution estimates that exports would rise 8.42 percent next year, compared with 12.74 percent growth this year.
Wu expects domestic demand to play an important role in holding up the nation’s economy next year, with momentum in the private investment sector showing a rebound.
Private investments are expected to rise 2.42 percent next year from a contraction of 1.65 percent this year, while private consumption is expected to moderately expand 2.64 percent next year, down from a 3.3 percent increase this year, according to CIER’s latest data.
The slowing economy would negatively affect Taiwan’s job market, the institution said. The unemployment rate is expected to stand at an average of 4.51 percent next year, compared with 4.44 percent for this year.
However, the institution said Taiwan’s economy might bottom out in the first quarter next year and show a rebound in the following quarters, in line with the government’s forecast.
Following rising uncertainties on the global economy, the government might continue to expand public investments to stem the slowing economic growth and stimulate the job market, the director of the institution’s center for economic forecasting, Liu Meng-chun (劉孟俊), told a media briefing.
However, facing the pressure of surging national debt, Liu said plans with high investment efficiency should be implemented in advance, as they might drive up private investments.
Separately, Barclays Capital yesterday also revised downward its forecast for Taiwan’s economic growth for next year by 1 percentage point to 3 percent, to reflect the more difficult export environment, while keeping its forecast for GDP growth this year at 4.4 percent.
With inflation muted, policy focus is turning to growth, Barclays said. The brokerage house expected the central bank to keep the policy rate at 1.875 percent at its board meeting scheduled for Dec. 29.
“We believe it is premature for the central bank to cut rates, unless there are more signs of stress in the job market,” Barclays said in a research note.
In addition, the brokerage house said fiscal pump-priming is on the way for Taiwan, as sensitivity to economic performance rises ahead of the presidential election on Jan. 14.