July 29, 2004
The Taiwan Institute of Economic Research (TIER) in July revised its forecast for Taiwan's
GDP this year up from the 5.08 percent it had predicted in April to 5.67 percent. The principal reasons for this upward revision are the improving unemployment situation, expanding private investment and private consumption, and progress on such government investment projects as the Ten New Major Construction Projects and the High Speed Railway.
While the global and domestic SARS epidemic had a negative impact on domestic private investment and consumption in 2003, the global and domestic economic rebound this year has caused investment willingness among enterprises to climb from negative 0.7% last year to 20.17% this year. This year's reduction in unemployment and the recovery of the real estate market have led to an increase in private wealth, which has in turn caused private consumption to expand from 0.79% in 2003 to 3.16% this year. Also, as the Council for Economic Planning and Development has completed the first annual budget for the Ten New Major Construction Projects, meaning spending could begin as early as the third quarter, government investment has risen from negative 1.82% last year to 3.88%.
TIER estimates the economy expanded by a high 7.03% in the second quarter (on the back of 6.28% growth in the first quarter), but notes that this high figure is partially the result of the slow growth experienced due to the impact of SARS in the second quarter of last year. The institute predicts growth will slow to 4.98% and 4.55% in the third and fourth quarters respectively, and points out that a slight slowdown is natural after such high growth. It also cites such factors as rising oil prices, interest rate hikes and China's efforts to cool down its overheated economy as reasons for the relatively slower pace of growth in the second half of the year.
As for economic growth in 2005, TIER, though not yet positing any specific figures, is slightly more conservative than it is about growth this year. Noting that Taiwan's economy is closely tied to those of both the United States and Japan, the institute points out that this year the US' economy is being driven chiefly by big spending in the automobile and housing markets, while consumption in Japan is primarily the result of purchases of such electronic goods as digital cameras and LCD televisions. As these purchases are typically one-time purchases, TIER foresees some saturation in these markets in 2005. The resulting shrinkage in spending is expected to affect Taiwan's economy to a certain degree.
Also, while the US Federal Reserve is expected to raise interest rates, TIER says that it does not foresee Taiwan's central bank immediately following suit. As reasons for this call, it notes that Taiwan's stock market is presently suffering from bearish sentiments and that there are no concerns of inflation. The institute figures that, if the central bank were to boost rates, it would not do so until September or October.
(Economic Daly News, Taipei Times)
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