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Taiwan's GDP growth forecast downgraded

Publication Date : 19-07-2012


Academia Sinica, the top research institute in Taiwan, yesterday downgraded the expected economic growth rate for 2012 from 3.81 per cent to 1.94 per cent, citing weaker-than-expected exports due to the European debt crisis and slowdown in China.

Academic Sinica's forecast is the first to predict GDP growth for the year of less than 2 per cent.

The data provided by the research institute suggests growth rates for the first, second, third and fourth quarters should be 0.39 per cent, minus 0.89 per cent, 2.72 per cent, and 5.29 per cent, respectively, indicating that economic conditions are more likely to recover slowly from the third quarter instead of in a V-shaped rebound.

Head of Academia Sinica's Institute of Economics Peng Shin-Kun said that it is “mission impossible” for growth in 2012 to top 3 per cent, a feat which would require the third and fourth quarters to both see growth of more than 5 per cent.

Shrinking exports

The previous forecast made by the same institute in 2011 expected the early harvest list of the Economic Cooperation Framework Agreement to boost export growth to 5.15 per cent.

Yesterday's forecast, however, crushed such expectations, with the export growth rate cut sharply to 0.87 per cent. According to Academia Sinica, the European debt crisis has caused global demand to shrink. The slowdown of economic conditions in China is also taking a heavy toll on Taiwan exports.

Academia Sinica also cut its outlook for private consumption from 2.72 per cent to 2.1 per cent. Rising oil and electricity rates, uncertainties created by the stock gains tax, and the general pessimism among consumers all affected the willingness of people to spend, the institute said.

In terms of investment, total growth was downgraded from minus 0.32 to minus 2.13 per cent, blamed on declining investments from both the government and private companies.

Taiwan Semiconductor Manufacturing Co. has been the only private company to increase their investment this year. Due to shrinking global demand, firms reduced their investments, according to the institute.

Investment in the tourist industry, however, increased because of the growing population of visitors from Hong Kong and mainland China.

Taking into consideration of the rising power rates, decreasing global oil prices, and lower communication fees, Academia Sinica forecast inflation this year to be 1.8 per cent.

Oil prices might rise in the fourth quarter, which will also see the second increase of electricity rates. Thus, although inflation for the year is expected to be lower than 2 per cent, Academia Sinica still expects inflation in the third and fourth quarters to be 2.07 and 2.18 per cent, respectively.

The labour market is expected to be stable with the unemployment rate at around 4.18 per cent, according to data from the institute.

The average salary is expected to decrease by 0.43 per cent due to gloomy global economic prospects, which are likely to cause companies to ask their employees to take unpaid leave.

Ray Chou, a researcher with the institute, stated that the government should initiate fiscal policies such as increasing public spending to boost the economy.

According to the Directorate General of Budget, Accounting, and Statistics, however, the government is not able to order rises in spending because of the legal limits for government debt.


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