Mon, Jan 03, 2005 page10

• Pundits expect a stable economy

  GLOBAL SLOWDOWN Economists say that Taiwan's GDP growth will slow at the same pace as the world economy this year, but the nation will enjoy stability

  • By Jessie Ho / STAFF REPORTER
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  Taiwan is heading toward a stable economic performance this year, despite economic growth expected to pale in relation to the stellar performance of last year.

  Slowing at the same pace as the world economy this year, Taiwan's gross domestic product (GDP) -- the total output of goods and services -- is expected to grow 4.56 percent, down from 5.93 percent last year, as predicted by the Cabinet-level Directorate General of Budget, Accounting and Statistics.

  Research institutes such as the Taiwan Institute of Economic Research (TIER, 台經院) forecast this year's GDP at 4.62 percent, the Chung-Hua Institution for Economic Research (中經院) expected 4.37 percent, while Academia Sinica, the nation's leading research institute, has the lowest prediction of 4.05 percent.

  Looking back on the past year, Taiwan's economy has seen an impressive performance after a gloomy 2003. The economy roared at full throttle in the first half of the year, although it cooled down in the second half, as a result of rocketing crude oil and raw materials prices, rising interest rates, as well as the nation's tumultuous legislative elections.

  For this year, the volatile crude oil prices, China's macro-economic clampdown policy, rising interest rates and a fluctuation in currency exchange rates among major trading partners are expected to continue impacting on Taiwan's economy, economists said.

  In line with the interest rate hikes by the US Federal Reserve, the nation's central bank last week unexpectedly lifted the benchmark rates by 0.125 percentage points for the second time in four years to make sure inflation does not get out of control.

  "The central bank's move was meant to help keep the nation's interest rates moving in tandem with rates upheld by foreign countries to stem capital flight," said Wu Chung-shu (吳中書), a research fellow at Academia Sinica.

  Wu said there is no inflation looming as a result of flattening oil prices. He also shrugged off a possible impact brought by the imminent price hike in electricity and water fees, saying the two items account for only a small percentage of consumer expenditure.

  But a wild card for the economy is what will happen to the New Taiwan dollar, which has risen more than 6 percent against its US counterpart last year.

  Taiwanese exporters have voiced their concerns over the appreciation, saying it will make their goods more expensive and less competitive on foreign markets.

  If the US continues its weak dollar policy this year, it will further dent export business and so hurt the nation's economy as a whole, Wu said. The institute forecast the export sector to grow 8.8 percent year-on-year to NT$7.55 trillion (around US$236 billion) this year, down from 17.49 percent growth last year to NT$6.94 trillion.

  But economists said that job security remains a top issue for most people. The unemployment rate dropped to 4.14 percent in November, the lowest level since May 2001.

  An impetus to the creation of more job opportunities is the "10 New Major Construction Pro-jects," through which the government plans to pump NT$93.09 billion into various public infrastructure projects, starting next year, said Kung Ming-hsin (龔明鑫), an economist at TIER.

  The latest consumer confidence survey released by the National Central University last week showed that over 65 percent of the respondents were upbeat about job opportunities in the next six months.

  An increase in jobs and a declining unemployment rate, coupled with strong private investment and public expenditure, should help boost GNP per capita to US$14,961 this year, the highest figure in the nation's history, from US$13,995 per capita last year, according to DGBAS.

  Considerable private investment and spending will further sustain economic strength. According to Academia Sinica, private investment for next year will reach NT$1.5 trillion, up from NT$1.39 trillion last year, and consumer spending will also surge from NT$6.38 trillion to NT$6.54 trillion this year.

  Therefore, even though the new year is expected to see a significant economic slowdown, economists said the government and people need not to panic or become depressed.

  "The economy is returning to the fundamentals rather than being influenced by non-economic factors," TIER President Wu Rong-i (吳榮義) said.

  Wu said that what South Korea did to revive its economy after the Asian financial crisis in 1998 is a good example to Taiwan.

  Wu Chung-shu agreed, saying that the South Korean government had tried to boost its economy through consumer spending with easy lending, but the result was a consumer-credit bubble that burst in early 2003.

  "Instead of intervention to pump up the economic growth rate like in South Korea, the government should put its efforts into improving the investment environment," Wu said.

  "The economy has its cycle that goes up and down from time to time ... the important thing is to store energy during the downturn to fuel the next big jump," he said.

  Against this backdrop, a stable cross-strait relationship is key to the nation's prosperity. China has become Taiwan's largest trading partner, with trading volume mounting to US$50.5 billion for the first 10 months of last year, a 36.6 percent increase from a year ago. But Beijing recently decided to enact anti-secession legislation that may hurt business ties between the two sides.

  Another suggestion is to end the long-standing political confrontation between the two major political camps at home, Academia Sinica President Lee Yuan-tseh (李遠哲) said last week.

  Lee urged the two camps to seek reconciliation and press through bills and laws -- such as Amendments to the Resolution Trust Committee Fund Regulatory Provisions (金融重建基金條例), the Land Tax Law (土地稅法) -- that will improve the nation's economy.
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