Cathay Financial Holding Co (國泰金控) yesterday said it expects GDP growth next year to slow to 2 percent from 2.1 percent this year, as the expansion phase for the nation’s business cycle nears its conclusion in the absense of clear global growth catalysts.
“The nation’s business cycle is estimated to have entered its expansionary phase in October of 2015 and we are approaching the end of the growth period, which is predicted to last between 24 and 37 months,” said National Central University economics professor Hsu Chih-chiang (徐之強), who led the research team.
Much like other major markets such as the US, China and Europe, where the pace of growth has started to stabilize following a long expansionary period in their business cycles, Taiwan’s most recent expansion cycle has been tepid, Hsu said.
A slowdown in economic expansion would begin to take shape in the second half of this year, with quarterly growth predicted to fall to 0.58 percent between July and September and 0.46 percent in the last quarter of the year, Hsu said.
Despite the lack of a driver of growth, stable external demand, sound fundamental metrics and industrial indicators, as well as export volumes are still trending favorably and expected to sustain modest GDP growth next year, Hsu said.
Hsu added that the central bank is not likely to raise interest rates this year amid rising geopolitical tensions and with no sign of domestic overheating.
In addition, inflation is expected to reach 0.66 percent, markedly undershooting the government’s one percent target, he said, adding that a relatively benign typhoon season and a strengthening New Taiwan dollar have resulted in low inflation this year.
Meanwhile, economic growth would be dependent on whether the reshuffled Cabinet’s policies could produce a tangible stimulus, Hsu said.
Premier William Lai’s (賴清德) plans to pass a 3 percent pay raise for public-sector workers and his promise to bring flexibility to new labor rules would be helpful in boosting consumption and investment, he said.
“Economics is about emitting signals to draw the desired reactions from consumers and businesses, and positive changes such as to labor legislation should be made sooner rather than later,” said former National Development Council minister Kuan Chung-ming (管中閔), who is on the research team.
Still, that signal is not likely to be strong enough, Kuan said, adding that the wage hike would lead to a minimal increase in base income, as most public sector workers’ compensation includes supplementary items.
“A real shock is needed to jolt the economy back to life, such as bigger and consecutive public sector wage hikes,” Kuan said.
As for the private sector, businesses have already been through many rounds of rule changes that raised their commitments to pensions and health insurance, and they have little desire to raise salaries, Kuan said.
The nation has not seen a significant positive shock since the cross-strait trade talks on the goods and services industries in 2007, Kuan said, adding that Taiwan-China relations are a challenge that the ruling party cannot avoid.
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