Fri, Nov 23, 2007 - Page 1 News List

GDP forecast up on third-quarter boost in growth

By Lisa Wang  /  STAFF REPORTER

The government yesterday raised its forecast for this year's economic growth to 5.46 percent after third-quarter growth hit a three-year high, driven by robust electronics exports.

The strong economic growth and the rising risk of inflation encouraged speculation that the central bank will raise benchmark interest rates next month, analysts said.

Third-quarter GDP increased 6.29 percent from last year, exceeding the 4.47 percent estimate in August.

The boost was mostly a result of strong exports to emerging markets such as China and India, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said.

The results outshone most economists' expectations, including Lehman Brothers' forecast of 5.4 percent and Citigroup's 5.1 percent.

"We are surprised by the export contribution to Taiwan's GDP. We believe the central bank's decision will reflect this [strong economic data]," said Cheng Cheng-mount (鄭貞茂), Citigroup's chief economist based in Taiwan.

Exports contributed 3.1 percentage points to the quarter growth figure, compared with the 1 percentage point the DGBAS said it had expected.

As economic growth in the third quarter was so strong, the central bank will have more leeway to tighten its monetary policy amid greater inflation risk, Cheng said.

The DGBAS yesterday forecast that GDP would rise to 5.46 percent this year at an annual rate, from its previous estimate of 4.58 percent. It also raised its estimate for the annual increase in the consumer price index (CPI) to 1.65 percent from 1.48 percent for this year.

The central bank may raise key interest rates by another 25 basis points in the upcoming quarterly meeting, following 12 straight quarterly hikes, Cheng said.

The rediscount rate, which the central bank charges local commercial banks for loans, rose to 3.25 percent.

"More and more economic data is on the side of the central bank, which hopes to increase interest rates to boost the real rate to a neutral level," said Liang Kuo-yuan (梁國源), president of the private Polaris Research Institute think tank in Taipei.

The good news dispelled worries that economic growth could be cooling, Liang said, but added that inflationary pressure was rising and capital outflow was a lingering problem.

Liang said he did not rule out the possibility of a 0.25 percentage point hike, compared with his previous forecast of 0.125 percentage points.

Looking into the final quarter of the year, DGBAS forecast GDP would expand 5.43 percent on the back of sustaining export momentum and stable private consumption.

The government agency also raised its estimate for next year's annual economic growth to 4.53 percent from its 4.51 percent estimate. It also said CPI could increase 1.48 percent rather than 1.46 percent.

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