Yuanta-Polaris Research Institute (元大寶華研究院) yesterday slashed its economic growth forecast for Taiwan to 1.15 percent this year, amid slowing global trade due to developing markets’ worse-than-expected performances.
The institute’s latest forecast is 2.14 percentage points lower than its previous estimate in June and less than the 1.56 percent predicted by the government last month.
However, given the low basis set this year, Taiwan’s GDP might grow by 2.3 percent next year, it said.
“Taiwan’s slowing economic growth has become a matter of national security, and persistent stagnation is expected as the nation has accomplished little to address lingering structural factors hampering its long-term prospects,” institute chairman Liang Kuo-yuan (梁國源) said at a news conference.
Liang said that slowing global trade is the greatest structural factor hampering growth for the nation’s export-oriented economy.
GDP is likely to contract by 0.35 percent from a year earlier this quarter before expanding by 0.79 percent next quarter, the institute said.
“Global GDP growth in 2012 outpaced the increase in global trade for the first time since the 1950s,” Liang said.
However, tangible progress toward eliminating tariffs and trade barriers has been lacking in recent years, he said, adding that global investment sentiment has been on the decline since the global financial crisis of 2008-2009, leaving a significant amount of funds dormant, despite near-zero interest rates.
Other structural factors affecting Taiwan include the rise of China’s so-called “red supply chain,” the global transition from production-based to knowledge-driven industries and a rapidly aging population.
“Although Taiwan’s prospects will continue to face long-term headwinds, near-term demand for Apple Inc’s iPhone 6S and Internet of Things applications might bring intermittent relief to the nation’s electronic components sector,” Liang said.
The institute cut expected export growth this year to 0.31 percent from its previous estimate of 3.59 percent in June, saying exports might shrink by 1.24 percent this quarter and 1.7 percent next quarter.
The institute forecast that exports would grow by 1.79 percent annually next year.
Regarding rising concern that Taiwan is poised to see deflationary pressure, Liang said that the anticipated devaluation of the New Taiwan dollar against the greenback will continue to keep the issue at bay, adding that the nation’s consumer price index for this year is forecast to fall by 0.21 percent annually and grow by at most 0.82 percent next year.
“In light of the current political atmosphere, it is likely that the central bank will be compelled to reduce interest rates, but this should not be the focus,” Liang said.
“Politicians might not be aware of the fact that interest rate cuts have little positive effect in times of stagnant economic growth. The nation should instead contemplate its diminishing competitiveness,” Liang said.
“An interest rate cut would further exacerbate Taiwan’s income disparity and create gains for very few,” he said.
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