The ongoing water shortage poses a serious downside risk to the economy, which has achieved stability as cheaper fuel expenses boost corporate profits and consumer spending, Yuanta-Polaris Research Institute (元大寶華研究院) said yesterday.
Water rationing could affect the output of major industries by up to 20 percent, removing as much as 0.825 percentage point from GDP growth this year — if the water shortage persists, institute chairman Liang Kuo-yuan (梁國源) said on the sidelines of a quarterly news conference.
However, the chances of that outcome coming to pass are diminishing amid this week’s precipitation and the upcoming monsoon season, the economist said.
Photo: Yang Chin-cheng, Taipei Times
Manufacturers across sectors including metals, petrochemicals, textiles and paper products, as well as critical electronic components, are more vulnerable to water rationing, he said, adding that they account for 16.7 percent of GDP.
However, a more likely scenario this year is a 5 percent decline in total output due to the water shortage, with GDP growth softened by 0.2 percentage points, Liang said.
“That means the nation’s economy may manage to stay above 3.5 percent this year,” he said.
Photo: Wang Meng-lun, Taipei Times
The Taipei-based think tank yesterday raised its forecast for GDP growth to 3.66 percent for this year, from 3.45 percent it projected three months earlier, citing stronger private consumption and net exports attributable mainly to cheaper fuel and electricity costs.
Global trade improved in the second half of last year and the trend is expected to continue this year, although the volume has yet to recover to the levels seen before the global financial crisis in 2008, the institute said.
Exports contracted 1.3 percent for the first two months of this year, but cheaper crude prices helped lower imports by a faster pace and therefore widened trade surpluses, government data showed.
Energy cost savings allow companies to post stronger earnings and individuals to buy more non-fuel items, the institutes said.
International researchers report that demand for Apple Inc’s iPhone and other electronic devices remain strong and local companies in the supply chain may continue to thrive, Liang said.
Companies involved in non-tech sector exports could extend a lackluster performance from last year as crude prices might not stage a comeback soon, he said.
Given that, Yuanta-Polaris cut its forecast for consumer price growth to a record low of 0.1 percent this year.
Liang dismissed deflation concerns, saying that prices for food and non-fuel consumption continue to climb.
The pace of interest rate hikes by the US is likely to pose another headwind for the local economy, as global fund movements could hit the local bourse more intensely, the economist said.
The central bank may step in to stabilize the local currency, which may trade at an average of NT$31.9 against its US counterpart this year, the institute said.
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