The Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) yesterday cut its forecast for GDP growth this year to 1.36 percent, from its previous forecast of 2.24 percent in December last year, as soft external demand weighs on exports.
Exports, which account for 70 percent of GDP, might make a parlous contribution this year as rivals in China and other emerging markets increasingly catch up with Taiwanese technological development and cut their imports from local suppliers, CIER president Wu Chung-shu (吳中書) said.
“The incoming government should take notice of the trend and embark on structural reform without delay,” Wu told a news conference.
The economy could have contracted 0.8 percent during the first quarter, extending three consecutive quarters of decline, dragged by disappointing exports that more than subdued a mild increase in private consumption, the Taipei-based institute said.
SinoPac Financial Holdings Co (永豐金控) chief economist Jack Huang (黃蔭基) voiced concern that Taiwan has lagged behind global trade performance since 2008, suggesting the need for reform of the nation’s industrial policy.
“All sectors know why trade terms are deteriorating, so incoming policymakers should skip the discussions and take action to put the nation back on the right course,” Huang said.
For years, government officials, industry leaders and academics have blamed the predicament on the nation’s concentration on the information technology and communication sectors, as well as the pursuit of low-value-added business models.
Heavy dependence on the Chinese and ASEAN markets has not only delayed industrial upgrades and innovation, but it has also squeezed wage growth, analysts say.
Exports are forecast to contract 3.64 percent year-on-year this year, while imports are expected to decline 4.99 percent, rendering a modest trade surplus, CIER said.
The incoming government should make it clear which industries it would be promoting and cut back on its trade ties with China so that the private sector would know how to adjust its business strategies, Huang said.
Local banks have been seeking to expand in China for the past eight years to better serve Taiwanese firms with operations there, but that expansion hit a snag after the cross-strait service trade agreement failed to clear the legislature, he said.
The nation could see a fragile rebound this quarter and beyond as bigger declines in imports continue to generate trade surpluses, CIER researcher Peng Su-ling (彭素玲) said.
National Central University economics professor Chiu Chun-jung (邱俊榮), who is to help monitor the National Stabilization Fund for the incoming government, said deteriorating trade terms spell opportunity for change and local firms should shift to a high-value-added business model.
Just as local hotels are wooing tourists from Southeast Asia to offset a drop in the number of Chinese tourists, local manufacturers should also reach out to customers in emerging markets other than China, Chiu said.
A quick fix would serve only to delay, rather than solve, the fundamental problems with the economy, he said.