The Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) yesterday slashed its forecast for this year’s GDP growth from 1.36 percent to 0.84 percent, as the global economy remains weak and unfavorable for exports and private investment.
The Taipei-based think tank expects exports to contract 0.14 percent this year, from its April forecast of a 0.6 percent increase, because it does not expect the anticipated improvement in the second half to be strong enough to offset the decline in the first half, CIER president Wu Chung-shu (吳中書) said.
Exports, including goods and services, might have recovered to positive territory with a 0.45 percent increase last quarter and might rise further by 1.26 percent this quarter and 1.62 percent next quarter from a year earlier, Wu said.
Photo: Wang Meng-lun, Taipei Times
The expected recovery is largely due to a low comparison base last year and will not be fast enough to offset a 4.06 percent fall in the first quarter, he said.
The lackluster outlook is due to stalling growth in advanced nations, while emerging markets struggle with a slowdown, Wu said.
The global scene suggests that the room for improvement in external demand is limited, despite the advent of the high sales season for technology products, Wu said.
Companies will be conservative about capital spending against the backdrop, the CIER said.
It trimmed its forecast for private investment from a 0.84 percent increase over last year to 0.5 percent.
Domestic demand is expected to underpin growth, not because of a shift in economic structure, but because external demand’s contribution is zero, said Lin Tzong-yau (林宗耀), director-general of the central bank’s Department of Economic Research.
Lin said he was concerned that private consumption and imports might be overestimated because they are heavily linked to exports.
Exports needs account for purchases of machineries and raw materials, and the dim business outlook might slow their consumption, Lin said.
In addition, most firms are unlikely to increase hiring or raise wages this year, limiting an improvement in private consumption, Lin said.
“The monetary easing by central banks worldwide shows the practice is limited [in success and effectiveness] and policymakers should consider fiscal loosening to stimulate growth,” Lin said.
The nation’s central bank has cut interest rates four times since September last year, but the output gap continues to widen.
The Brexit drama and sporadic terrorist attacks in Europe pose downside risks to the forecast, among other uncertainties, CIER researcher Peng Su-ling (彭素玲) said.
In addition, financial markets are likely to continue speculating on rate hikes by the US Federal Reserve, driving global funds around the world and creating asset bubbles as they move, Peng said.
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