The inflow of Chinese tourists next month will be positive for economic development but will make only a modest contribution to GDP, a global financial services company said, while raising its GDP forecast based on other factors.
UBS, the world’s largest manager of private wealth assets, said yesterday the economy would reap benefits from the arrival of Chinese tourists starting on July 18, but it might not be the economic godsend many have hoped for.
“Even if 10,000 Chinese were allowed to visit a day and spent NT$15,000 each during their stay, it would only raise the nation’s GDP by 0.5 percent,” said Kevin Hsiao (蕭正義), a chartered financial analyst at USB Wealth Management Research Taiwan. “But the public sentiment here is that they will bring in a huge fortune and fix the economy.”
Under the agreement between Taiwan and China, 3,000 tourists will be allowed per day.
Hsiao was optimistic about the economy, however, and raised his forecast for economic growth from 4.1 percent to 4.5 percent for this year, citing the the nation’s better-than-expected performance in the first five months.
Hsiao said exports jumped 17.4 percent between January and last month despite the economic slowdown in the US, the country’s second-largest trade partner.
“Trade with China rose 20.9 percent and trade with other Asian nations rose 26 percent during the period, more than offsetting the negative growth of 0.5 percent [in trade] with the US,” he said.
He predicted that Taiwan would continue to post export growth for the rest of the year, but the showing would not be equally lustrous in the second and third quarters because of the impact of inflation.
The government ended a six-month freeze on fuel prices on May 28 and will raise electricity rates on July 1.
The rising prices of fuel, food and raw materials have weakened domestic consumer spending and thus contributed less to the nation’s economic growth.
While the strong performance of exports is likely to drive GDP growth, Hsiao said the overall contribution from exports to GDP was declining. Exports in the first quarter accounted for 48 percent of GDP, down from 68 percent for 2005 to last year, he said.
To contain inflationary pressure, Hsiao said he believed that the central bank would hike interest rates by 0.125 percent at its quarterly meeting next week.
He said the adjustment would be modest considering the sharp rise in commodity prices, which rose 3.71 percent year-on-year last month. The negative real interest rate would dent consumer confidence, which is another concern, Hsiao said.
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