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CIER downgrades '12 growth to 1.52%

Chung-Hua Institution for Economic Research (CIER, 中經院) yesterday slashed the expected economic growth in 2012 from 2.36 percent to 1.52 percent, citing the worse than expected global economic condition, ratification of the stock gains tax, and the influence of real housing price registration policy.

Despite the downgrade, CIER President Wu Chung-shu (吳中書) was still optimistic about the economic condition in the fourth quarter of this year. According to him, the economy reached bottom in the third quarter and has been gradually improving starting this September.

In September, export returned to double-digit growth. Wu said the U.S. purchase management index — an indicator which measures new orders, inventory levels, production, supplier deliveries, and the employment environment — rose above 50, indicating manufacturing expansion. In addition, exports to mainland China are growing, all of which will fuel the economic growth, Wu said.

Although companies in some industries have started demanding their workers take unpaid leaves, Wu said in general the situation is improving.

CIER Center for Economic Forecasting Director Liu Meng-chun (劉孟俊) added that the U.S., Japanese and European quantitative easing policies will push economic growth in the fourth quarter. The CIER expects the GDP to grow by 4.26 percent year-on-year in the fourth quarter. Domestic investment and export in the fourth quarter are also expected to grow by 2.16 percent and 7.02 percent year-on-year, respectively.

As for 2013, CIER forecasted that the GDP will grow by 3.59 percent, citing the launch of new technological products, which are expected to boost global consumption, and general optimism among global think tanks. Global Insight, the world's largest economics organization, forecast that the growth of Europe and mainland China in 2013 will be greater than this year, and the U.S. will maintain its current economic momentum.

Liu, however, still warned that the European debt crisis, upcoming financial problem in the U.S., financial policies taken by mainland China after the 18th national congress, and the quantitative easing policies of major economies are risk factors for the economic condition in 2013.

The research institute estimated that in the third quarter the GDP grew by 1.42 percent year-on-year. The number was sustained by a low base level in 2011, increasing private consumption in food items and beverages, as well as an increase in tourists from abroad.

Estimated Inflation in 2012 to be 1.97 percent

CIER estimated that inflation in 2012 will be 1.97 percent. Severe weather conditions in the third quarter drove the consumer price index to increase by 2.95 percent year-on-year. The research institute expects the year-on-year inflation rate in the second half of 2012 to be 2.47 percent.

Quantitative easing policies are expected to drive up the prices of precious metals, raw materials, and bulk materials, according to CIER. Growing demand from emerging markets may produce a higher inflation rate.

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