Mon, Oct 21, 2019 - Page 6 News List

EDITORIAL: Economic optimism unfounded?

The Chung-Hua Institution for Economic Research on Friday revised upward its forecast for the nation’s GDP growth this year to 2.33 percent and said growth next year would not be much different from this year.

The institute joined other major research institutes and government agencies that have recently adjusted upward their forecasts for GDP growth, ranging from 2.2 to 2.4 percent, believing that accelerating domestic investment and stabilizing private consumption would largely offset the effects from softening external demand amid the US-China trade conflict.

However, there is disagreement over whether next year’s GDP growth would be better than this year’s.

The Directorate-General of Budget, Accounting and Statistics (DGBAS) is the most optimistic, with a forecast of 2.58 percent growth for next year, compared with its 2.46 percent growth estimate for this year, while the Yuanta-Polaris Research Institute, Taiwan Institute of Economic Research, Cathay Financial Holding Co and the central bank have all predicted a slowdown for next year.

Last week, the IMF trimmed its outlook for global GDP growth and lowered its growth forecast for Taiwan to 2 percent this year and 1.9 percent next year, citing fallout from global trade tensions.

It appears the DGBAS might be a little too optimistic, but last week it reiterated its confidence in the nation’s economy, saying that GDP growth would be stronger than the IMF forecast, citing its access to more precise data about the nation’s economy.

However, the DGBAS’ rosy forecasts were based on stronger-than-expected first-quarter and second-quarter data. An important question is whether domestic investments — driven mainly by Taiwanese businesses returning home to skirt US and Chinese tariffs — would sustain growth in the following quarters.

Investments by returning firms is likely to continue to grow in the second half of this year and next year — the Ministry of Economic Affairs has said that about 30 companies are waiting for investment approvals.

However, private investments might post a smaller annual increase next year due to a high comparison base this year.

Another question is whether Taiwanese firms will continue to benefit from orders transferred from China and boost their shipments next year. The positive effects of transferred orders might diminish with time, as well as due to other factors — such as an economic slowdown in the US and China as well as Beijing’s accelerating shift to other non-US suppliers — which could put a squeeze on many Taiwanese suppliers and pose downside risks for the nation’s exports.

Last but not least, it is questionable whether other contributors to GDP growth, such as government investment and private consumption, will provide momentum to the economy next year.

The picture for the global economy remains bleak, as forecasters continue to adjust downward their projections for global interest rates, the world economy and international trade, and Taiwan can hardly move forward alone given its export-oriented economy.

Taiwan depends more heavily on foreign trade than its neighbors: The proportion of merchandise exports to GDP reached 57 percent last year, which means when global trade slows down, Taiwan bears the brunt.

The nation’s economic prospects might not be as optimistic as the DGBAS makes them out to be, and the government might need to consider more fiscal policy measures in advance, as the central bank’s monetary policy is unlikely to change in the short term to support the economy.

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