If the latest economic forecast by the government is to be believed, it faces a difficult mission delivering on its promise of maintaining GDP growth of 5 percent this year. The bad news is that the real picture would fall far short of the government’s estimate if more negative elements are factored in.
On Thursday, the Directorate-General of Budget, Accounting and Statistics (DGBAS) again revised downward its economic growth forecast for this year to 4.81 percent from the 5.01 percent it forecast last month, after it last month adjusted downward the forecast to 5.01 percent from the 5.06 percent predicted in May. For next year, the government said it now expected the economy to expand 4.58 percent.
The DGBAS revised downward its growth forecast for the first quarter to 6.16 percent from 6.55 percent, but revised upward its estimate for the second quarter to 5.02 percent from 4.88 percent. It expected the economy to expand 3.48 percent in the third quarter and 4.71 percent in the fourth quarter. With an average of 5.59 percent growth in GDP in the first half of the year based on the latest government data, the economy is predicted to slow to an average growth of 4.095 percent in the second half, 0.21 percentage points lower than the previous estimate issued last month.
Either from a seasonally adjusted annualized rate (SAAR) or seasonally adjusted quarterly rate (SAQR), the DGBAS data showed the nation’s economy would contract in the third quarter from the previous quarter and mark the first contraction since the first quarter of 2009. Whether the economy would hit a trough in the third quarter, as Citigroup predicted, or climb off the bottom in the first quarter next year, as Morgan Stanley’s predicted, Taiwan faces formidable challenges in the global economic environment during the second half of the year, such as the eurozone’s sovereign debt crisis, the lackluster economic recovery in the US and inflationary pressures in emerging markets.
The government also faces a basketful of uncertainties at home, which DGBAS statisticians have not taken into account in their downward revision of the GDP growth estimate released on Thursday.
These uncertainties are the likely appreciation of the New Taiwan dollar against the US dollar on renewed recession fears for the US economy, the shutdown of Formosa Plastics Group’s plants in the Mailiao petrochemical complex for safety inspections and the fewer-than-expected number of Chinese tourists and their lower-than-anticipated spending. In Formosa Plastics Group’s case, this year’s GDP growth could be cut by a further 0.2 percentage points if the Mailiao complex remains partially shut through the end of the year, according to the DGBAS’ estimate.
What can the government do to deal with the challenge? It could seek to further boost domestic consumption or look for ways to attract more foreign companies or overseas Taiwanese businesses to invest in Taiwan. For instance, if a report by Japan’s Sankei Shimbun last week that Taiwan and Japan may enter a bilateral investment protection agreement next month proves to be true, it would facilitate more economic exchanges between the two countries.
If the government could step up efforts to invite more Japanese companies to invest in Taiwan at a time when Japan is rebuilding its global production strategy following the March 11 earthquake and tsunami, it would help offset the falling private and public investments the nation has seen this year.