The Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) yesterday forecast that the economy would contract 1.01 percent in the second quarter from a year earlier, citing weaker-than-expected demand from both external and internal sectors.
The Taipei-based think tank also cut its GDP growth forecast for the nation this year to 2.41 percent, from the 3.48 percent it estimated in April.
The institute’s forecast for the second quarter marked the lowest level among domestic think tanks. Currently, TIER and Academia Sinica are the only two domestic institutes to forecast negative growth in Taiwan’s economy for the April to June period.
“The institute’s pessimistic view of GDP growth for the second quarter was fueled by ‘cold’ sentiment in both external and internal sectors,” Gordon Sun (孫明德), director of TIER’s economic forecasting center, told a media briefing.
Exports have been starting to slide down from the first quarter due to the impact of the eurozone’s debt crisis, which further dragged down consumer and investor confidence in the second quarter and affected momentum for domestic consumption and investment, Sun said.
However, Sun said the economy may have bottomed in the second quarter and could bounce back to stability in the second half of the year, if the European debt problem does not deteriorate further.
Following the reaching of a conclusion to the ractopamine issue and the capital gains tax on securities by the legislature on Wednesday, consumer and investor confidence may also rebound in the second half, with the government to concentrate on tackling fundamental economic problems, Sun added.
The latest survey made by the institute also provided more evidence that the economy may return to a steady pace in the second half.
The survey showed that 26.7 percent of respondents from the manufacturing sector felt positive about the outlook for the next six months, a spike from 22 percent in a similar survey made a month earlier.
However, more than 35 percent of respondents remained bearish about their businesses over the near future, raising some uncertainties for economic sentiment in the third quarter, Sun added.
For the whole year, the institute forecast a 2.12 percent growth in private consumption, while private investment was expected to fall 1.93 percent.
Poor domestic demand may lead the input sector to drop 1.83 percent this year, with the output sector rising 1.22 percent, as external demand slowed as well, the institute’s data showed.
On the consumer price front, the institute forecast Taiwan’s headline inflation index would rise 1.84 percent this year, down from the 1.98 percent previously estimated.
Nevertheless, the government should still carefully watch the trend of global crude oil prices over the near future, which may be a key factor for domestic inflationary pressure, Sun added.