The global economy may have bottomed out earlier this year, but an Academia Sinica economist is maintaining a cautious outlook for next year due to the US “fiscal cliff.”
He also expects the government’s plan for “free economic demonstration zones” may be an important step that helps the nation’s economy break out of its sluggishness.
“The US fiscal cliff will be the major uncertainty for the global economy next year,” Ray Chou (周雨田), an economic research fellow at Academia Sinica, told reporters on the sidelines of an economic forum yesterday.
Chou said various studies indicated that the US fiscal cliff may have more than a 50 percent chance of happening and therefore the public should not be excessively optimistic about the US and global economy next year.
However, Chou said business sentiment in export-oriented Taiwan next year is still expected to improve from this year, while the economy may have bottomed out earlier this year.
The government’s plan for “free economic demonstration zones” may also help drive the nation’s economy out of its current hardship, Chou said.
On July 18, Academia Sinica cut its forecast for Taiwan’s GDP growth to 1.94 percent for this year. It plans to update its growth forecast for this year and next year on Dec. 18.
In related news, Standard Chartered PLC on Thursday said it expected economic growth in Taiwan to rebound to 3.9 percent next year from the 1.5 percent growth it has forecast for this year on the back of a recovery in China and steady growth in the US.
That may lead the central bank to resume raising interest rates at its board meeting in June next year and further raise the benchmark rediscount rate to 2.25 percent by the end of next year, from 1.875 percent currently, the firm’s report said.
“The recent uptrend in key economic data, including industrial production, capital goods imports and exports orders also suggests that economic activity bottomed out in the first half of this year,” Tony Phoo (符銘財), a Taipei-based economist at the bank, said in the report.
Unlike Chou, Phoo said the potential worsening of the European sovereign debt crisis is the major drag on global economic growth.
Phoo said he has become slightly more upbeat on the outlook for Taiwan’s technology sector and that he expects confidence to return, which bodes well for capital expenditure and hiring.
Also, continuing growth in domestic demand is also likely to support the economy, following growing optimism about household incomes and a steady job-market outlook, Phoo added.
With recent data showing signs of a modest recovery and with inflationary risks remaining elevated, Phoo expects the central bank to shift its attitude on policymaking to a more neutral stance by starting to increase interest rates in June next year.