Sat, Oct 16, 1999 page17

• Chung-Hua maintains GDP stance

  CONSERVATIVE OUTLOOK The think tank's predictions are more cautious than those of the government on figures for this year and next

  • By Shirley Sun / STAFF REPORTER
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  A leading think tank says the 921 earthquake will hold Taiwan's GDP growth rate this year to 5.32 percent, although continued strong exports and sharp increases in both public and private investment could drive next year's growth rate to 6.05 percent

  The forecast by the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院 ) is more conservative than the Council of Economic Planning and Development's (CEPD) estimation of 5.5 percent for this year and 6.5 percent for next year.

  However, "The estimated 5.32 percent growth rate for this year is higher than what CIER predicted in July [which was 5.3 percent], mainly because the outstanding performance of the second quarter [6.54 percent growth rate] was 1.5 percent higher than the predicted 5.01 percent [buffering the decrease of the third and fourth quarters]," said CIER president Mai Chao-Cheng (麥朝成).

  Mai said it was unfortunate that the quake, which caused an estimated NT$290 billion (US$9.1 billion) in damages, happened at a time when Taiwan's economy was recovering from the Asian economic crisis.

  "Exports were growing continuously, foreign capital was pouring in, and the financial market was quite stable," he said.

  He also noted that real expansion accelerated from 4.26 percent in the first quarter to a startling 6.54 percent in the second quarter, before dipping to 5.41 percent in the third quarter due to tense cross-strait relations and an island-wide power blackout on July 29.

  However, although the earthquake hurt exports and imports, Mai said, "because the quake happened near the end of the year, it will have a rather limited effect on this year's overall GDP."

  According to CIER's report, this year's fourth-quarter growth rate would struggle to hit 5.07 percent. Exports and imports will slow, although both should remain above 5 percent.

  CIER says next year Taiwan's economy will be driven by both domestic and international demand.

  The fixed capital investment expansion will jump to 8.85 percent and private investment will increase sharply from the current 2 percent to 12.01 percent, driven largely by the reconstruction work.

  Although world trade demand is expected to be strong, Taiwan's export growth rate could be reduced to 5.87 percent as a result of power rationing, insufficient inventory, and loss of orders after the 921 quake. However, import growth rate will be higher, to an estimated 6.26 percent, due to reconstruction demand.

  Government officials and academics said yesterday that the effects on the GDP of government expenditure for 921 post-quake reconstruction would be less than anticipated, and is unlikely to sideline private investment plans such as the high-speed railway project (高鐵計畫).

  Hou Teh-chian (侯德潛), division chief of the economic research department of the Central Bank of China (中央銀行), said that the total amount of redeposits and time-deposits amount to approximately NT$680 billion.

  But the expenditure on reconstruction plus the central bank's low-interest rate loans is currently estimated at almost NT$300 billion, he said.

  Therefore, "There is still a lot of room for the money demanded by private investment," he said, adding that there is also another postal deposit of NT$980 billion at the Central Bank.

  Although government reconstruction expenditure is expected to be huge, its effect on next year's GDP is less than anticipated.

  An official from the Directorate General of Budget, Accounting, and Statistics (主計處, DGBAS) said that Taiwan is increasingly become an export-driven economy.

  "Last year's exports amounted to NT$5.9 billion; this year so far they have accumulated NT$8.7 billion, and the amount should exceed NT$10 billion," the DGBAS official said.

  That is to say, private sector is the key engine driving economic growth.

  This view is shared by Chen Wen-Lang (陳文郎), representative from Industrial Bank of Taiwan (臺灣工業銀行).

  "It is therefore important for the government to deal with the wealth lost through damage to industry in central Taiwan," he said.

  But Chen Yenpao (陳元葆), director at the Center for Economic Forecasting at Chung-Hua Institution for Economic Research (中華經濟研究院), pointed out that while over 50 percent of government reconstruction spending would have a positive effect on next year's GDP, "the effect of the remaining 40 percent remains to be seen."

  According to the DGBAS, total government reconstruction expenditure would amount to NT$130 billion.

  The figure includes NT$60 billion for social welfare and subsidies, NT$37 billion for school demolition and reconstruction, NT$16.5 billion for traffic and water-supply infrastructure restoration, NT$8 billion for disease control and sanitation, NT$7 billion for transportation, and NT$1.5 billion for natural environment protection.
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