The Taiwan Research Institute (TRI, 台灣綜合研究院) yesterday set its forecast for the nation’s GDP growth next year at 1.74 percent, compared with a forecast of a 1.26 percent pickup this year, as the global economy might recover slightly faster, although uncertainty lingers.
The Taipei-based think tank urged the government to introduce bold fiscal stimulus measures to spur domestic demand, as a small improvement in external demand is inadequate to sustain the concrete growth seen in past years.
“The government can beef up its spending and guide excessive savings to infrastructure projects, as domestic demand needs to replace exports as the key growth driver next year and beyond,” TRI president Wu Tsai-yi (吳再益) said at a news conference in Taipei.
It is unrealistic to count on external demand to supply the catalyst with the world mired in anemic growth, while the shadow of protectionism has heightened, Wu said, citing the UK vote in June to exit the EU and the election of Donald Trump as US president last month.
Trump has vowed to quit the Trans-Pacific Partnership (TPP) the first day he assumes office next month. He has also criticized cheap imports from emerging markets such as Taiwan for dragging the US economy and taking away jobs from Americans.
The sentiment is contagious and it merits a shift of focus on boosting domestic demand, Wu said.
The government can achieve the aim by introducing stronger fiscal stimulus measures by using the nation’s excessive savings, he said.
Based on the institute’s prediction, government expenditure is forecast to hold virtually steady next year compared with a forecast of a 2.42 percent increase this year, while government investment might slow from 2.25 percent to 1.16 percent.
The conservative spending might not help the economy when consumer confidence is weak and the population is aging quickly, meaning less productivity and income tax revenue, TRI founder Liu Tai-ying (劉泰英) said.
Private consumption is forecast to grow 1.72 percent next year, slowing from an increase of 1.91 percent this year, the institute said.
Exports of goods and services could advance 3.38 percent, while imports pick up 3.43 percent, accelerating from 1.17 percent and 2.09 percent this year respectively, the institute said.
The New Taiwan dollar is likely to depreciate against the US dollar and trade at an average of NT$32.77 next year, Liu said, after US Federal Reserve raised its policy rates by 25 basis points on Wednesday and indicated there would likely be three more increases next year.
The central bank could hold its interest rate or increase it by just 12.5 basis points as the economy has only just emerged from a downturn and the recovery remains mild, he said.
The bank is due to review its policy rates on Thursday next week.
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