A deepened global slowdown along with sluggish private consumption yesterday led a think tank to lower its GDP growth forecast to 4.1 percent for this year, down from its estimate in June of 4.6 percent, with government spending expected to play a key role in driving growth.
Though exports posted a robust showing in the first half, domestic demand decelerated faster than expected, indicating the economic slowdown had spread to Taiwanese consumers, the Taipei-based Polaris Research Institute (寶華綜合經濟研究院) said in a report.
“We expect the economy to slow to 4.1 percent this year,” institute president Liang Kuo-yuan (梁國源) said at a press conference yesterday. “There is still room for downward adjustment if the government fails to carry out its spending program in an effective fashion.”
The government is spending some NT$130 billion (US$4.06 billion) on public construction projects nationwide in the hope of boosting the GDP growth rate by 0.45 percentage points by the end of this year.
Liang said that domestic contractors were not eager to bid for the infrastructure projects because increasing raw material costs could cut into profits.
The institute put the projected GDP growth at 2.82 percent and 3.17 percent for the third and fourth quarters respectively, with government spending expected to contribute 20 percent and 36 percent in that order.
Meanwhile, exports are expected to slow to 4.88 percent and 1.21 percent on falling demand and deteriorating trade terms, the report said. Overseas shipments expanded 11.83 percent and 9.16 percent in the first and second quarters, government data showed.
Liang said the uncertain outlook in China following the Beijing Olympic Games posed an additional challenge in light of Taiwan’s increasing dependence on its giant neighbor’s markets.
In terms of demand, the economist forecast that consumer spending would continue to weaken as export growth has failed to benefit domestic industries or their workers, whose wages have been steadily eroding since 1990.
“The trend makes government measures to lift private consumption futile,” Liang said. “I don’t see a remedy in the foreseeable future.”
The report speculated that the local currency will trade at an average of NT$31.2 against the greenback this year, compared with the NT$30.3 it projected three months ago.
Liang attributed the revision to the rising demand for US dollars as a better investment option than other currencies amid the global financial turmoil.
The report projected yearly inflation would reach 3.8 percent, from the previous estimate of 3.4 percent, adding that consumer prices would remain high in the second half even though oil costs had dropped significantly.
In related news, Standard Chartered Bank predicted in a note released yesterday that the central bank would end four years of tightening measures and keep the discount rate unchanged at 3.625 percent at its board meeting next Thursday, in the hope of bolstering sagging market confidence.
The UK lender observed the central bank was keeping close tabs on financial markets that have suffered in recent days on cash woes plaguing major US investment institutions.
The central bank has repeatedly hiked discount rates since October 2004 to help stabilize commodity prices.
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