Mon, Apr 25, 2005 page10

• Pundits forecast slower growth in second half

  GLOBAL FACTORS The nation's economic-growth rate for the second half of the year could decline, depending on trends in both China and the US

  • CNA
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  If China continues to macro-manage its economy and the global economy keeps slowing down, Taiwan's economic growth in the second half of this year is expected to be adjusted downward, economists said yesterday.

  The Chung-Hua Institution for Economic Research (中經院) on April 14 lowered its estimate of Taiwan's economic-growth rate this year from 4.37 percent to 4.05 percent, and the government's Directorate General of Budget, Accounting and Statistics also adjusted its forecast down to 4.21 percent.

  Foreign banks in Taiwan have set their forecasts of Taiwan's economic growth this year at between 4.0 percent and 4.5 percent.

  On Taiwan's economy, Cheng Chen-mao (鄭貞茂), an economist at Citibank, said that second-quarter growth may be even lower than the first quarter, though many have predicted it will improve in the second half. Two factors must be taken into account for this, Cheng said: To what extent China macro-manages its economy, and how strongly the US economy recovers.

  A third factor affecting Taiwan's Q3 and Q4 performance will be how strongly Taiwan's electronics industry recovers, Cheng added.

  Trade surplus

  He said Taiwan's foreign trade surplus has shrunk mainly because its electronics industry has not recovered, keeping a large portion of production facilities idle. Therefore, he said, increases in orders for and prices of electronics products will be a key indicator for economic performance in the second half of the year.

  China has been an important market for Taiwan, absorbing Taiwan's electronics output in step with the world market. Over the past few years, however, Taiwan has increased steel, petrochemical and other exports to China. If China keeps implementing its macro-management policy, Taiwan's export businesses will definitely be affected, Cheng said.

  Citibank has forecast that China's economy will grow 8.5 percent this year, but the Chinese government recently announced that the growth rate for the first quarter was 9.5 percent. Therefore, Cheng said, China will likely take further steps to cool down its economy.

  An economist with Taiwan's Standard Chartered, Tai Hui, agreed that the Chinese and US economic situations will affect Taiwan's performance in the second half of this year.

  As the two major economies are doing quite well, as is Taiwan's domestic demand, and the government is seeking to boost the economy, Standard Chartered Taiwan remains optimistic about the nations' growth in the second half, Hui said.

  Hui attributed the poor first-quarter trade surplus -- a mere US$290 million -- to slow export growth in semiconductors and rising oil prices.

  Domestic market

  At the same time, he pointed out, strong domestic demand and real-estate investments have been buttressing Taiwan's economic development.

  He warned that oil price fluctuations and the nation's growing dependence on the Chinese market are "risk factors" that Taiwan must face.

  Professor Chu Hao-min (朱浩民) of National Chengchi University in Taipei said as the global economy has been slowing, import demand in such major markets as Europe and the US -- Taiwan's major export markets -- has naturally affected Taiwan's export performance.

  "If not for the Chinese market, Taiwan would have long ago suffered a trade deficit," Chu said.

  He further said that Taiwan's current account surplus has been shrinking, capital outflows have exceeded inflows, and the international balance of payments is feared to worsen.

  But this may also signal an increase in the import of production machinery and equipment, which would mean a boom in investment.

  "That would be a good thing for the long-term growth of the economy," he said.

  Chu did not agree with Standard Chartered's upbeat view on Taiwan's real-estate market, saying housing prices in Taiwan are approaching their ceiling.

  In the second half, economic performance will be affected mainly by business investments, domestic consumption and government stimulation measures, in addition to the Chinese and US economies, he said.
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