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Weak demand, slowing trade to mire local economy: CIER

TAIPEI, Taiwan -- Taiwan will see a 1.72-percent GDP growth in 2013, and 3.03-percent growth in 2014, according to the latest forecast made by the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) yesterday.

According to Liu Meng-chun (劉孟俊), CIER's director of the Center for Economic Forecasting, weak private demand coupled with slowing growth in imports and exports, a sluggish economy may become a “new normality” for Taiwan.

Looking at the Purchasing Manager Index, a gauge of manufacturing sector activities, Taiwan's figures lag behind those of the U.S., Europe and the mainland China — another sign that Taiwan's economic recovery still lacks momentum.

“With insufficient private demand, public construction hindered by the upper limit of government bond and stagnant salary increase, both private demand and foreign demand lack growth momentum.” Liu said, adding that “Taiwan's overall economic growth is facing major challenges and it remains to be weak.”

Taiwan and Japan are facing similar problems, including stagnant earnings increase, insufficient growth momentum, and lack of consumer confidence.

 According to the Council for Economic Planning and Development, Taiwan has been facing a slow economy for 27 consecutive months. The export order PMI has also contracted for 6 consecutive months.

World Economy

CIER predicted that the world economy would grow next year, although with decreased momentum. Liu forecast a U-shape recovery; in other words, the world economy will stay at the bottom for some time.

In November, the Cabinet's Directorate-General of Budget, Accounting and Statistics (DGBAS, 主計處) forecast an economic growth rate of 1.74 percent in 2013 and 2.59 percent in 2014.

Taiwan's Future

The most pressing issue for Taiwan is to launch the Free Economic Pilot Zones, Liu said, adding that the first stage of the project has been completed, while the second stage can only proceed upon the Legislature's approval, but the process is rather slow.

“We forecast that private investment will be the major force that drives economic growth next year. It is forecast to grow 4.24 percent, higher than the projected 3.03 percent annual growth,” Liu said.

Chu Yun-peng (朱雲鵬), a professor of economics at the National Central University (中央大學), stated yesterday in a economic outlook forum organized by the CIER that the free trade agreement (FTA) between China and South Korea represents the most significant variable affecting Taiwan's economic prospects.

The FTA between the two countries may be implemented as early as next year, and the impact will be like that of “an atomic bomb,” Liu said. Taiwan's manufacturing sector will be facing catastrophic impact when China and South Korea finalize a bilateral free trade agreement.

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