Cathay Financial Holding Co (國泰金控) yesterday raised its GDP growth forecast for Taiwan this year from 1.5 percent to 2.1 percent on the back of improving external conditions.
Since the beginning of this year, the US, China and Europe have exhibited faster-than-expected economic growth, leading to stronger external demand that would boost the nation’s export-oriented economy, with gains led by local technology and electronics suppliers, researchers said.
However, National Central University economics professor Hsu Chih-chiang (徐之強), who led the research team, said Taiwan’s economy still lacks internal catalysts.
GDP growth this year would be stronger in the first half and is likely to slow in the second half, Hsu said.
Specifically, Hsu pegged this quarter’s GDP growth at 0.67 percent, slightly higher than the 0.64 percent forecast given by the Directorate-General of Budget, Accounting and Statistics (DGBAS).
Hsu’s team foresees GDP growth reaching 0.81 percent in the second quarter, significantly higher than DGBAS’ 0.81 percent estimate.
The outlook on domestic consumption and investments remains dim amid uncertainties about government policies and water and energy shortages, Hsu said.
Hsu said that inflation in Taiwan this year would be about 1 percent, and the central bank is expected to raise interest rates along with the US Federal Reserve.
“Taiwan’s economic growth is dependent on too many things that are uncontrollable,” former National Development Council minister Kuan Chung-ming (管中閔) said, referring to extreme weather conditions and swings in the global economic conditions.
Kuan is also part of the research team.
In addition, uncertainties about the government’s labor policies have continued to affect domestic consumption and investment, as consumers and businesses remain reserved toward spending, Kuan said, adding that retirees are unsure about spending amid ongoing public sector pension reform.
“While it would require more observation to gauge the full impact of the ‘one fixed day off, one flexible rest day’ rule, the change has already brought higher labor costs for some businesses, such as retailers and restaurants,” Kuan said.
“We have already seen some businesses raise their prices to accommodate increased labor costs, which would contribute to rising inflation,” Kuan said.
Kuan said that internal factors affecting consumption and investments could escalate into significant headwinds and drag the nation’s GDP growth this year to as low as 1.4 percent, compared with an estimated upper range of 2.5 percent, adding that consumption is expected dip lower compared with last year.
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