TAIPEI: Academia Sinica yesterday cut its GDP growth forecast for the nation this year to 0.52 percent — the lowest of all domestic research bodies — from its previous estimate of 1.74 percent, in the wake of Britain’s decision to exit the EU.
The chance of a contraction in the nation’s economy is 50 percent if things fare worse than expected, the nation’s top research institute said.
“Heightening uncertainty and tepid growth momentum are making the recovery [in Taiwan] bumpy,” research fellow Ray Chou said.
The nation’s economy might be weaker than last year, when GDP increased 0.65 percent, Chou said.
The latest growth forecast represented a downward revision of 1.22 percentage points from Academia Sinica’s forecast in December last year, reflecting a fast deterioration over the past six months, Chou said.
The institute voiced reservations about a widely expected improvement in the second half, saying the nation’s heavy dependence on China makes it vulnerable to economic rebalancing in that nation.
The government’s efforts to diversify Taiwan’s export destinations might not bear fruit in the short term and the nation’s trade activity will continue to struggle, Chou said.
Exports are expected to decline 0.42 percent this year from last year, although the bellwether sector might start to show positive cyclical movements from this quarter, thanks to a low comparison base.
While capital equipment imports and the purchasing managers’ index have expanded for some months, export orders for information and communications products remain in negative territory, the institute said.
The slowing global economy will dampen the nation’s external demand, and local companies will hesitate to increase their production capacity, the institute said, cutting its estimate for the growth of private investment for this year by 1.77 percentage points to 0.32 percent.
Private consumption should remain resilient, given that it rose 2.19 percent in the first quarter, but the latest retail and dining sales data indicate a slowing trend after poor exports dragged wholesales into negative territory, the institute said.
The softening trend extends to real wages, as firms are unlikely to raise personnel costs given the lackluster business outlook, the institute said, adding that the consumer confidence index has declined for several months, affirming a conservative sentiment.
Private consumption might grow only 1.3 percent for this year, down from the 1.78 percent projected in December last year, the institute said.
The unemployment rate averaged 3.88 percent for the first five months of the year, higher than the 3.78 percent during the same period last year, although the figure might pick up as new graduates start to join the labor market, the institute said.
“Overall, we might not see improvement this year compared with last year,” Chou said.
Structural economic reforms are needed to make the nation less susceptible to external shocks, he said.
