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June 27, 2017

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CIER raises Taiwan's GDP growth forecast to 3.15%

TAIPEI, Taiwan -- Thanks to higher-than-expected private consumption, private investment and trade in goods and services, the Chung-Hua Institution for Economic Research (CIER) yesterday raised its forecast of the nation's GDP growth this year to 3.15 percent, up 0.1 percentage points from its previous forecast.

Increases in average earnings and a booming stock market have resulted in higher private consumption and investment, which are expected grow 2.03 percent and 3.58 percent, respectively, said Liu Meng-chun (劉孟俊), head of CIER's Economic Forecasting Center.

CIER is more optimistic about the future, and forecast 3.2-percent GDP growth for 2015. In addition to a global economic recovery that will drive Taiwan's exports next year, higher domestic demand will further boost the local economy, said CIER President Wu Chung-shu (吳中書).

An improved economy around the globe has prompted many domestic institutes to make upward adjustments to forecasts for the local economic growth rate. Last week Academia Sinica forecast GDP growth of 3.31-percent, which is the highest among all forecasts. The rate, however, is still lower than the 3.2-percent goal set by the National Development Council.

Growth in Emerging Economies a Concern

Although predicting a bright economic future, CIER also listed some major factors that may impact the economy: geopolitical crises, emerging markets' slowed economic growth, Beijing's lukewarm economic economy and heightened competition between Taiwan and mainland China.

Armed conflicts in Ukraine, as well as civil wars in Syria and Iraq, add uncertainty and may lead to spikes in oil prices in the future, which could result in reduced global consumption and investment, said the think tank.

Global research institutes have recently cast doubts about emerging economies. According to Global Insight, developing countries will have a 5-percent or below GDP growth between 2012 and 2014, which is a significant loss of momentum, said CIER. The IMF in April also expressed concern about emerging economies' economic performances, and consequently lowered its global economic growth rate forecast.

China's Impact on Taiwan

There are two factors that may negatively impact China's growth, said CIER. First, declining property prices are fueling pressure on China's real estate bubble. Second, local debt levels have risen rapidly over the years. Debt amounts owed by local governments in June 2013, grew by 3.87 trillion Chinese yuan, compared with end-2010, representing a staggering 19.97-percent annual growth, which was much higher than China's GDP growth.

An improved global economy is likely to drive Taiwan's exports, but competition among businesses across the strait does not work in Taiwan's favor. China has beefed up its local supply chain, and over-production has become an issue, further intensifying competition between Chinese and Taiwanese businesses, especially for the electronics and optical industries, including the solar energy sector, said CIER.

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