Academia Sinica, Taiwan’s top research institute, yesterday trimmed its GDP forecast for this year to an unprecedented decline of 3.46 percent, down from a December forecast of 0.56 percent growth, but declared the worst of the downturn is over.
Despite the downward revision, Wu Chung-shu (吳中書), an economic research fellow who delivered the report on the institute’s behalf, said the economy is on the way to a slow and protracted recovery.
“We expect the nation’s economy to contract 3.46 percent this year, the most ever,” Wu told a media briefing.
The economist attributed the economic woes to sharp drops in external demand, private investment and consumption following the financial crisis.
GDP, which contracted 10.24 percent in the first quarter, is forecast to drop 7.05 percent and 0.11 percent in the second and third quarters respectively but increase by 3.91 percent in the fourth quarter, the report said.
The outlook, while pessimistic, is brighter than the picture sketched by the Directorate-General of Budget, Accounting and Statistics, which predicted last month the economy would decline 4.25 percent this year.
Wu said Academia Sinica was less pessimistic because it anticipated a bigger trade surplus of NT$2.17 trillion (US$66 billion), compared with the government’s estimate of US$27.21 billion.
Wu said the global slump had stabilized and the domestic situation showed stable signs of improvement.
“The leading business cycle indicator has, since February, gained points for three months in a row,” he cited as an example.
Exports, the main driver of the economy, are forecast to drop 13.97 percent this year, while imports are estimated to weaken 17.41 percent, the report said.
Private investment, meanwhile, is expected to plunge 23.97 percent as companies halt expansion amid the recession, Wu said.
Although the government had introduced assorted stimulus measures and planned to increase investment by 18.34 percent, these are not significant enough to sustain growth, the economist said.
“In fact, the government may contribute to uncertainty if it fails to carry out assorted spending programs competently,” Wu said.
Wu said the central bank would probably leave interest rates untouched after its quarterly board meeting next week as economic activity remains weak despite ample idle funds.
Wu predicted that consumer prices would only drop 0.19 percent this year with little deflation or inflation pressure.
Academia Sinica’s GDP forecast is higher than the 4.8 percent decline predicted by Polaris Research Institute (寶華綜合經濟研究院) but lower than the 3.59 percent drop forecast by the Chung-Hua Institution for Economic Research (CIER, 中經院).
The Taiwan Institute of Economic Research (TIER, 台經院) is the lone think thank at home or abroad that maintains the nation can achieve growth of 0.11 percent this year.
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