The Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) yesterday kept its forecast for Taiwan’s GDP growth this year unchanged at 4.1 percent, but trimmed values for key components due to surging cases worldwide of the Omicron variant of SARS-CoV-2 and escalating geopolitical tensions.
Private consumption would replace exports as the main growth driver, although the spread of COVID-19 has slowed this quarter, the institute said.
“The COVID-19 pandemic continues to pose the biggest downside risk, while inflation and geopolitical conflicts are adding to the uncertainty,” TIER president Chang Chien-yi (張建一) said, citing Russia’s military buildup at Ukraine’s borders.
Photo: Allen Wu, Taipei Times
Tensions between Moscow and Kiev have rocked the international oil market, as major world powers warned Russia they would not tolerate an invasion of Ukraine.
Consumer prices climbed 7 percent in the US and 5 percent in the EU last month, but inflation is not expected to become a major threat in Taiwan, where authorities have policy tools to rein it in, Chang said.
The US Federal Reserve is expected make known its latest policy stance after its meeting this week, including the number of rate hikes it is planning this year, he said.
TIER expects consumer prices to rise a mild 1.65 percent this year, moderating from 2 percent growth last year.
Private consumption would expand 4.93 percent, down 0.1 percentage points from its projection in November, to reflect the Omicron headwinds, the institute said.
Tightened social distancing requirements might temporarily derail restaurants, hotels, retailers and recreational facilities from the course of recovery, it said.
Over time, the world — including Taiwan — might choose to coexist with COVID variants, as most Omicron patients appear to display mild or no symptoms, Chang said.
A general pay raise would step up private consumption, aided by a stable economy, he said.
Exports would remain strong, thanks to insatiable demand for new technology products and applications, but the trajectory would not look as steep as last year, he said, adding that major technology firms have offered positive guidance for their business.
Exports are expected to increase 3.75 percent, while imports are forecast to advance 3.42 percent, 0.66 and 0.82 percentage points weaker than previous projections respectively, TIER said.
Supply chain bottlenecks would remain a concern, but not a serious threat, it said, as countries around the world refrain from lockdowns to contain COVID-19 infections.
Private investment, another growth pillar last year, would expand 2.75 percent this year, as very few firms would aggressively increase capital spending year after year, it said.
The central bank is likely to follow the lead of a hawkish Fed by raising its key interest rates in June at the earliest, the institute said.
Wu Meng-tao (吳孟道), director of the institute’s sixth research division, said the time was right for the Fed to tighten monetary policy amid continued economic stability and with unemployment below 4 percent.
More importantly, the Fed would likely start a cycle of rate increases to rein in rising consumer prices, Wu said.
“The local central bank is likely to make its own move by hiking interest rates by 0.125 to 0.25 percentage points in June at the earliest,” he added.
The institute also released a survey which showed that business sentiment in the manufacturing and service sectors improved last month, and that companies across sectors were optimistic about business in the next six months.
The sentiment gauge for manufacturers last month picked up 1.55 points to 103.91, while the measure for service providers rose 0.38 points to 98.59, the survey showed.
The confidence level for property developers and brokers grew 1.88 points to 110.95, it showed, consistent with a market boom.
Additional reporting by CNA
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