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TRI predicts 1.77-percent GDP growth this year

TAIPEI, Taiwan -- The Taiwan Research Institute (TRI, 台綜院) yesterday adjusted its 2013 GDP growth forecast to 1.77 percent, and its 2014 growth forecast to 2.81 percent.

The TRI said that the world economy is on track for a gradual recovery. According to the International Monetary Fund (IMF), the U.S. will see 1.6-percent growth in 2013 and 2.6 percent in 2014, while the eurozone will see negative 0.4-percent growth this year, and 1 percent next year, finally emerging from its economic quagmire.

The IMF forecast that Japan will see 2-percent and 1.2-percent GDP growth in 2013 and 2014, respectively, while Taiwan will see 2.2-percent and 3.8-percent growth in 2013 and 2014, respectively.

World Economy

TRI President Wu Tsai-yi (吳再益) said that unemployment rates are still high in the eurozone, while its weak banking infrastructure is in great need of reform. The debt ceiling crisis in the U.S. was temporarily defused. The unemployment rate in the U.S. dropped to its lowest point in five years. Wu said that Europe's leading indicators promise a better future, while the U.S. economy is also improving.

Thanks to “Abenomics,” or the economic policies rolled out by Prime Minister Shinzo Abe, both Japan's stock market and exports improved this year, consequently boosting consumer confidence. While China's economy slowed in the first half of the year, its manufacturing sector and exports grew in the second half. The TRI predicted that a hard landing would not occur in China.

Taiwan's Economy

According to the TRI, private consumption makes up 60 percent of Taiwan's GDP, and it is a main pillar supporting Taiwan's economic growth; therefore, it is critical to stimulate private demand. Investments make up 21.3 percent of the nation's GDP, and as such it is essential to improve the domestic investment environment to encourage growth. In addition, Taiwan has a reputation for high deposit ratios, which have in some ways affected Taiwan's investment.

Chu Yun-peng (朱雲鵬), a professor of economics at National Central University (中央大學), also attended the economic conference held by the TRI yesterday.

In response to the economic outlook provided by the TRI, Chu pointed out three risk factors which may send the economy downward next year.

Chu said that the interest rate of U.S. 10-year government bonds has risen to more than 1 percent. It is a sign that “quantitative easing (QE) is sure to taper off, and it is only a matter of time,” Chu said, adding that QE will taper off in the first half of 2014 at the earliest.

South Korea has long been considered Taiwan's main rival in exports. The country is currently negotiating with mainland China to sign a free trade agreement (FTA). Chu predicted the two countries would ink the agreement by next year, which is expected to take effect in 2015.

Thanks to South Korea's FTA with the U.S., Europe and ASEAN-6 countries, Taiwan's exports to the three areas dropped by 1.5 percent, 3.2 percent and 9.3 percent, respectively. While South Korea's FTA with these three markets can be considered as “traditional bombs,” in terms of their damage to Taiwan's exports, South Korea's FTA with mainland China will be considered an “atomic bomb,” Chu cautioned.

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