Yuanta-Polaris Research Institute (元大寶華綜經院) yesterday slashed its economic growth forecast for the nation to 1.42 percent for this year, from the 1.93 percent it projected three months earlier, as a worsening global slowdown and manufacturing outsourcing hit the nation’s export-reliant economy.
“Weaker-than-expected exports and private investment warrant a downward revision and downside risks remain amid a shaky global recovery inflated by monetary easing,” Yuanta-Polaris Research Institute chairman Liang Kuo-yuan (梁國源) said at a press conference in Taipei.
Yuanta-Polaris’ forecast is the lowest among several domestic research institutes and is also lower than the 1.47 percent growth estimate made last month by the Directorate-General of Budget, Accounting and Statistics (DGBAS).
Exports, which drive 70 percent of the nation’s GDP, is now expected to contract by 0.32 percent this year, from the previous estimate of a 2.02 percent expansion, as the world shows flagging interest in existing technological hardware devices due to a lack of innovative features, the Taipei-based think tank said.
Taiwan is home to major contract makers of Apple Inc’s iPhone and iPad, as well as other brandnames’ laptops and related electronic components.
Imports could fall 0.42 percent annually this year, rather than a 2 percent pickup as previously estimated, Liang said.
The shifting taste for technology consumption is set to weigh on private investment, which is likely to expand at a slower pace of 1.69 percent this year, from a growth of 2.36 percent projected three months earlier, the Yuanta-Polaris report said.
The increasing outsourcing of manufacturing activity to China and other countries is unfavorable for Taiwan’s research and development spending, which in turn affects job creation and wages at home, Liang said.
“This is why domestic wages have stagnated over the years, despite a noticeable increase in industrial output,” he said.
The incoming government should tap people with technology and science backgrounds to head the Ministry of Economic Affairs as well as other industrial departments to facilitate structural reform, he added.
While monetary easing is no panacea to economic ills, as evidenced by the sustained languid economy in Japan, Europe and elsewhere where central bankers are increasingly running out of policy tools, Liang said he expects Taiwan’s central bank to cut interest rates by between 12.5 and 25 basis points today to support growth despite its limited effect.
“It is not a matter of whether the central bank should cut interest rates, but by how much to help the economy turn around,” he said.
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