TIER downgrades '12 GDP growth to 2.41%
The China Post July 27, 2012, 12:17 am TWN
By Camaron Kao--Taiwan Institute of Economic Research (TIER) yesterday downgraded 2012 local economic growth from 3.48 percent to 2.41 percent, describing the current economic condition as bleak both domestically and internationally.
The institute expected the second quarter to be the lowest point for the economy and starting in the third quarter economic growth will begin making gains due to the low base level.
Internationally, the European debt crisis has caused export volume and investment to decline, stated TIER President David Hong (洪德生). Domestically, issues of the stock gains tax and twin power hikes created fluctuations in the financial market and decreased consumer confidence, lowering the growth of private consumption from 2.51 to 2.12 percent.
Macroeconomic Forecasting Center Director Gordon Sun (孫明德) stated that export was the first sector to be hit by the dire global economic condition, and starting in the second quarter the institute observed that the domestic market was also bleak.
"Wholesale, retail, and restaurant sales growth in the first half of 2012 was minus 0.58 percent, and the sales growth in June was minus 0.87, which is worse than the average growth rate from January to June," said Sun.
Looking ahead, Hong said the third quarter will be the time for southern European countries to pay their debts, which may create turmoil in the market. Furthermore, economic conditions in the U.S. and China also pose threats.
Citing the twin power hikes and uncertainties in the global market, which make businesses reluctant to invest, the president expected private investment this year to decrease by 1.93 percent. Along with the decline in government investment, the institute expected the fixed capital formation to decline by 3.24 percent.
Exports are forecast to increase by 1.22 percent, while imports are expected to decline by 1.83 percent in 2012.
The consumer price index is expected to increase by 1.84 percent this year, milder than the institute's previous estimate because of low global oil and metal prices resulting from slow economic growth, said Hong.
He cautioned that global prices of agricultural products are rising due to severe weather conditions in the U.S., and that oil prices have started to climb recently. These factors might push up inflation in 2012.
Promoting Cheap Products as a Way Out
Sun pointed out that China's imports declined significantly this year in terms of major exports from Taiwan to China, while China's exports of similar items did not decrease.
Sun analyzed that this is because cheap products produced in China can sell better amid gloomy economic conditions, and that China is undergoing import substitution.
"Export growth in Taiwan and Japan suffered a decline of 4 to 5 percent," Sun said, adding that the strong yen has made Japanese products relatively expensive.
The government should initiate a plan to promote cheap products, similar to its measure in 2009. This might provide a way out for Taiwan's economy, stated Sun.
Hong further stated that the government should implement import substitution to boost the economy, which might be beneficial for future development.
Pessimism in June, Optimism for Second Half
The manufacturing climate index in June was 87.68, the lowest since March 2009, showing a general pessimism toward the month's economic condition.
The service sector climate index in June was 88.67, the lowest so far this year.
The climate indices are computed from a survey of businesses and industries' perceptions of the current economic condition. These indices can serve as leading indicators of the state of the economy.
When asked about the economic prospects for the second half of 2012, compared with last month more business owners expected conditions to improve in the second half, while those expecting conditions to worsen remained about the same.
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