Think tank raises Taiwan's 2014 economic forecast (update 2)

Taipei, July 15 (CNA) The Chung-Hua Institution for Economic Research (CIER) has revised upwards its forecast for Taiwan's economic growth in 2014 because of continued strength in the country's exports as the global economy improves.

The Taipei-based think tank predicted that Taiwan's gross domestic product (GDP) will grow 3.15 percent in 2014, up 0.1 percentage points from its previous projection of 3.05 percent in April.

The economic recoveries in Taiwan and around the world have led many domestic institutes and think tanks to raise their growth projections for the country.

Academia Sinica, Taiwan's top research institution, went the highest with a forecast of 3.31 percent growth, followed by 3.29 percent growth estimated by Taipei-based Cathay Financial Holding Co. in mid-June.

Taiwan's Directorate General of Budget, Accounting and Statistics pegged the country's 2014 growth at 2.98 percent in its most recent forecast in late May. Taiwan's economy grew 2.11 percent in 2013, according to the statistics bureau.

Liu Meng-chun, the head of the CIER's Economic Forecasting Center, attributed CIER's upward revision in the growth forecast for Taiwan to higher domestic consumption, investment and trade in goods and services.

Many local economic indicators have been positive, Liu said at a press conference in Taipei, citing the upward trend in both the industrial production index and wholesale and retail sales over the past few months.

Globally, developed economies such as the United States and Europe are expected to drive growth in 2014 and 2015, Liu said, while economic activity in emerging markets, led by China, is slowing down and even dragging down economic growth worldwide.

CIER President Wu Chung-shu echoed Liu's overall assessment, saying that the country's economy is "recovering at a slow but stable pace."

Wu's remark was supported by Taiwan's exports during the first six months of the year, which have grown risen 1.96 percent from a year earlier.

"The growth indicates a warm market, but not one that is very strong yet," he said.

"Despite the optimism, we still need to closely watch future developments," Wu warned, adding that Taiwan still needs to speed up its industrial restructuring to enhance its competitiveness.

According to the think tank's forecast, Taiwan's GDP growth will be 2.86 percent, 3.32 percent and 3.26 percent in the second, third and fourth quarters of the year, respectively.

The institution predicted that private consumption growth will reach 2.03 percent for the year, while fixed capital formation will grow 2.22 percent.

Inflation will reach 1.52 percent in 2014, up from 0.79 percent in 2013, while the unemployment rate will decline from 4.18 percent in 2013 to 3.98 percent, it estimated.

Because of the improving global economy, the think tank also upgraded its forecast for Taiwan's economic growth in 2015 to 3.2 percent, up from its previous projection of 3.16 percent.

Grace Chu, chief risk officer at Shin Kong Financial Holding Co., warned, however, that the rosy economic figures might face a high risk of making a downward turn in 2015.

"If our economy grows some 3 percent this year, the base period for next year will be relatively high, especially in the second half," she said.

In addition, the high level of the local bourse also increases the risks of a fall. "We have to be vigilant at such high levels," Chu warned, adding that she is "holding a more conservative attitude."

The researcher also expressed concerns over a free trade agreement between China and South Korea that is expected to be signed at the end of the year. Because Taiwan and South Korea are each other's major competitors, such a pact "will pose a big threat to Taiwan's exports" to China, she added.

Taiwan-China relations, in terms of both politics and economics, "should be handled well," or Taiwan may lose its trade competitiveness, she warned.