The Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) yesterday cut its GDP growth forecast for the nation this year from the 4.07 percent it forecast in December last year to 3.55 percent, citing the negative impact of the rise in electricity and fuel prices.
The Taipei-based think tank’s forecast was lower than the 3.85 percent full-year economic growth rate predicted by the Directorate-General of Budget, Accounting and Statistics in February.
CIER president Wu Chung-shu (吳中書) attributed the downward revision mainly to the weaker domestic demand.
“The government’s move to raise electricity and gas prices may drag down momentum on private consumption and drive up companies’ operating costs,” Wu told a press conference.
Wu said the rise in electricity and fuel prices is expected to lower growth this year by 0.48 percentage points, an indication the latest downward revision was mainly due to this factor.
CIER also cut its growth forecast for private consumption this year by 0.4 percentage points to 2.24 percent, while expansion of the domestic investment sector is expected to stand at minus-3.32 percent, from the 0.09 percent estimated previously.
The rise in electricity and fuel prices also made the institute raise its growth forecast for inflation to 1.93 percent, up 0.45 percentage points from the December forecast, Wu said, adding that 0.44 percentage points of the upward revision was because of the price rises.
However, since the rising level of headline inflation is due to the government’s one-time adjustment, it does not indicate the nation is facing substantial inflationary pressure, Wu said.
Chu Yun-peng (朱雲鵬), an economics professor at National Central University who attended the press conference, backed Wu’s views.
“The one-time effect from the government’s increase of electricity and fuel prices will not be directly linked to inflation,” Chu said.
Of more vital interest is the trend in international crude oil prices and the US’ potential adoption of a third-round of quantitative easing measures, which may further raise global commodity prices, Chu said.
Tony Phoo (符銘財), an economist at Standard Chartered Bank in Taipei, agreed that compared with the first-round increase of energy prices, a second-round effect of shock price hikes in other daily essentials may lead to higher overall consumer prices.
However, given the current situation, Phoo said the central bank might not raise its policy interest rates this year because of the rising energy prices.
“Our house view is the central bank may raise its policy interest rates by 0.125 percentage points in the first quarter next year, if the momentum of economic expansion recovers as expected,” Phoo said.
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