Academia Sinica yesterday lowered its forecast for the nation’s GDP growth this year to 2.01 percent, down 0.44 percentage points from six months earlier, as exports took a hard hit from the US-China trade dispute, although private investment held strong.
Amid the trade dispute, the slowdown in the global economy was more evident in the first half of the year than in the second half of last year, Academia Sinica research fellow Ray Chou (周雨田) said.
The headwinds played havoc with Taiwan’s export orders, exports and industrial production in the first half, with small GDP growth of 1.71 percent in the first quarter, Chou said.
“We have revised down the GDP growth forecast to 2.01 percent, as downside risks loom large even though the US and China in June announced a truce for the second time,” Chou told a news conference.
The forecast made Academia Sinica the most pessimistic among all domestic research institutes.
Exports and imports are now expected to rise 2.23 percent and 2.22 percent respectively, from 3.11 percent and 3.01 percent predicted previously, the Taipei-based think tank said.
The US and China account for more than 50 percent of Taiwanese exports and Washington’s tariff hikes on Chinese goods in May squeezed margins for local firms in China’s electronics supply chains. Taiwan is home to the world’s largest suppliers of electronics used in smartphones, laptops and 5G network equipment.
Economic uncertainty has also dampened private consumption, with the key GDP component predicted to grow 1.93 percent this year after a lackluster 1.32 percent increase in the first quarter, Chou said.
That is because people are more conservative about buying cars, home appliances and consumer electronics, the economist said, adding that volatile financial markets have also increased people’s sense of unease.
The situation might improve in the second half, as the government has introduced subsidies and other stimulus programs and the high-sales season is arriving, the institute said.
Mild inflation, with consumer prices forecast to increase 0.85 percent for the year, might make people feel more comfortable about spending, it said.
However, private investment is forecast to grow 4.61 percent, higher than the 4.31 percent increase the research body last projected.
The Ministry of Economic Affairs as of yesterday had received 93 applications from firms based mostly in China to shift production lines home with investments totaling NT$452 billion (US$14.56 billion).
The trend is positive for the nation and policymakers must take steps to help resolve shortages of electricity, industrial land and talent, Chou said.
Against this backdrop, the central bank would not need to cut interest rates to support the economy as its peers in South Korea and Indonesia did on Thursday, Chou said.
South Korea announced a rate cut because it is taking an extra hit from its trade dispute with Japan, he added.
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