TIER cuts its GDP forecast to less than 1%

DOLDRUMS::There is still time before the nation approaches its debt ceiling and the government could raise the limit to boost infrastructure and push up GDP, TIER said

By Crystal Hsu  /  Staff reporter

Tue, Jul 26, 2016 - Page 12

The Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) yesterday cut its GDP growth forecast for this year from April’s 1.27 percent to 0.77 percent, as exports and private consumption have been softer than it expected.

It is the third time the Taipei-based think tank has revised down its growth forecast as uncertainty deepens over the global economic outlook after the UK last month voted to leave the EU.

“The government should take a more active role in boosting the economy, as monetary policy has its limits in achieving the goal,” TIER Economic Forecasting Center director Gordon Sun (孫明德) told a news briefing in Taipei.

The central bank has implemented monetary easing, cutting interest rates four times by 12.5 basis points since September last year to support economic growth.

However, the output gap — the difference between actual GDP and potential GDP — continued to widen, as the growth in supply continues to outpace the growth in demand.

Exports and export orders have yet to recover, although the pace of contraction narrowed to single-digit percentage points last month, Sun said.

Slack exports have prompted firms to be conservative about capital equipment purchases, even though a few semiconductor companies bucked the trend to maintain their technological edge, the institute said.

The government can spend more so that the share of investment in GDP makeup can rise to offset lackluster exports amid tepid global demand, Sun said.

There is still time before the nation approaches its debt ceiling and the government can always raise the limit, if necessary, to boost infrastructure facilities and push up GDP, he said.

“A 10 percent increase [in the debt ceiling] can generate an extra NT$1.7 trillion [US$52.9 billion] for a construction fund,” Sun said, adding that the central bank has expressed the need for a policy mix to pull the nation’s economy from the doldrums.

Governments around the world have taken a back seat while central banks practice monetary easing to battle an economic slowdown, Sun said, adding that the nation’s debt levels are relatively low compared with those in Japan and other advanced nations.

Poor exports might weigh on private consumption, which might grow 1.52 percent this year, down by 0.54 percentage points from the previous forecast, the institute said.

Private investment might register a 0.73 percent increase, 1.6 percentage points lower than the projection three months earlier, it said.

Exports might decline 4.33 percent this year, unchanged from the April forecast, it said.