TAIPEI: Taiwan’s government announced here the other day that its economic growth forecast for this year to 3.78 percent, amid expectations that lower energy costs would encourage companies and consumers to spend more.
That is up from its forecast of 3.5 percent growth in November and represents the fastest pace of expansion in three years, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said.
GDP growth could rise by 0.26 percentage point for each 10 percent decline in international crude prices, the statistics agency said, as Taiwan relies on imports for 99 percent of its oil demand.
Growth projections for this year were revised after the latest figures showed that the economy expanded 3.35 percent last quarter and 3.74 percent for the whole of last year, both exceeding estimates of 3.17 percent and 3.51 percent respectively, the agency said in a report.
“Growth momentum will extend into this year as lower oil prices are favorable to corporate earnings and consumer spending,” DGBAS Minister Shih Su-mei said.
The savings in energy costs will translate into higher profit margins and give companies more room to increase wages, Shih added.
DGBAS updated its growth forecast based on crude prices trading at an average of US$58 a barrel this year, down 30 percent from US$82.5 a barrel projected in November.
Though exports are expected to increase 7.26 percent this year, down 2.54 percentage points from the previous estimate, the resultant trade surplus could widen to US$48.44 billion this year, from US$39.58 billion last year, thanks to cheaper imports, the report said.
Chipmakers and other firms are poised to buy more capital equipment to meet demand for high-end technology, Shih said.
Private investment is expected to expand by 5.98 percent this year, up for a third consecutive year, the DGBAS report showed.
Likewise, private consumption may fare stronger at 3.12 percent this year, up from 2.7 percent in the last forecast, as consumers shift energy and transportation savings to other spending, DGBAS statistics division director Tsai Hung-kun said.
A stable job market and wage increases should lend support to private consumption, Tsai said.
Domestic demand is expected to lift GDP growth by 2.43 percentage points this year, accounting for 64.29 percent of the expansion, the report said.
Despite stronger spending, consumer price growth is expected to ease to 0.26 percent this year, with the inflationary gauge likely slipping into negative territory in the first half, the report said.
Tsai dismissed deflationary concerns, saying that cheaper oil costs rather than weak demand account for the deceleration in consumer prices.
“The inflationary reading would remain in the positive zone the entire year if oil prices are excluded,” Tsai said.
Despite its benefit, oil price volatility also poses the biggest downside risk as it is dragging exports of minerals, chemicals and plastic products, the report said.
