The Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) yesterday cut its forecast for GDP growth this year from 1.84 percent to 1.53 percent, saying the nation’s export-reliant economy has yet to hit rock bottom, as indicated by disappointing bellwethers.
It is the first downward revision by domestic research institutes this year and others could follow to reflect escalating downside risks.
“External demand might not recover much due to a lack of breakthrough electronic innovations on the horizon. Ongoing wide financial swings could foster conservative spending by consumers,” TIER economic forecasting center director Gordon Sun (孫明德) told a media briefing.
The scenarios, coupled with sustained slumping oil prices, suggest another year of sluggish growth, despite a low comparison base last year, Sun said.
The weekend snow storm in the US drove crude oil prices up noticeably, but the spike is likely to prove a fleeting phenomenon, as oil export nations refuse to rein in the supply glut, Sun said.
Companies worldwide have hesitated to replenish oil-related inventories on concerns that their costs might drop lower later and demand could turn out weaker than expected, the Taipei-based think tank said.
Expectations are unfavorable for economic recovery abroad and in Taiwan, where oil-related exports account for 20 percent of overall outbound shipments, the TIER said.
The institute forecast the economy could grow an insignificant 0.29 percent in the current quarter, down sharply from 4.04 percent during the same period last year.
Export orders, which foretell actual exports in the coming one to three months, plunged 12.3 last month from a year earlier, indicating the economy is not yet showing signs of stabilizing, Sun said.
Exports might expand a mild 2.02 percent this year from last year, while imports could increase 2.62 percent, the TIER report said.
Outbound shipments stripping services could contract by 7.38 percent in the first quarter and by 3.93 percent next quarter before recovering to expansion mode in the second half, the report said.
That leaves domestic demand to underpin the economy for the time being, but recent financial market volatility might translate into asset losses on the part of corporate and retail investors, Sun said.
Negative wealth effects might prompt consumers to be cautious about spending, despite the advent of the Lunar New Year holiday, the traditional high season for sales of clothing, food and beverages, and accommodation providers, Sun said.
Private consumption is expected to increase 2.42 percent this year, while private investment is expected to pick up 2.98 percent, the report said.
The power transition means policy uncertainty and firms are likely to play it safe by waiting on the sidelines until things settle, Sun said.
“The new government is to inherit quite a few economic challenges that require wisdom and prowess to resolve,” the economist said.
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