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Taiwan’s economy to grow 3.65 percent in 2013

Taiwan

Taiwan

The Taipei-based economic think tank said Tuesday that it now projects Taiwan’s economy to grow 3.65 percent this year, up from the 3.48 percent growth it forecast in December.

Liang Kuo-yuan, the institute’s president, attributed the upward revision mainly to “improving and stabilizing” global and domestic economic indicators.

The improved growth rate will also be helped by the low baseline set in 2012, when the economy grew at a 1.26 percent clip, largely because of weak global demand, he said.

The institute expects Taiwan’s GDP to grow 2.82 percent in the first quarter and then 3.93 percent, 4.19 percent and 3.62 percent in subsequent quarters this year.

It also raised its forecast for inflation in 2013 to 1.53 percent, from a previous projection of 1.4 percent.

The institute’s upward revision for growth follows a similar move by the government’s statistics bureau, which raised its growth rate forecast in late February to 3.59 percent from an earlier 3.53 percent on improving exports and private consumption.

The Council for Economic Planning and Development, Taiwan’s top economic planning agen has a dynamic capitalist economy with gradually decreasing government guidance of investment and foreign trade. Exports, led by electronics, machinery, and petrochemicals have provided the primary impetus for economic development. This heavy dependence on exports exposes the economy to fluctuations in world demand.

In 2009, Taiwan’s GDP contracted 1.9%, due primarily to a 20% year-on-year decline in exports. In 2010 GDP grew 10.9%, as exports returned to the level of previous years, and in 2011, grew 4%. However, 2012 growth fell to just 1.3%, because of softening global demand. Taiwan’s diplomatic isolation, low birth rate, and rapidly aging population are major long-term challenges. Free trade agreements have proliferated in East Asia over the past several years, but so far Taiwan has been excluded from this greater economic integration – with the exception of the landmark Economic Cooperation Framework Agreement (ECFA) signed with China in June 2010 – in part because of its diplomatic status.

Follow-on components of ECFA, including deals on trade in goods and services, have yet to be completed. The MA administration has said that the ECFA will serve as a stepping stone toward trade pacts with other key trade partners, and talks with Singapore on a deal began in 2010. Taiwan’s Total Fertility rate of just over one child per woman is among the lowest in the world, raising the prospect of future labor shortages, falling domestic demand, and declining tax revenues.

Taiwan’s population is aging quickly, with the number of people over 65 accounting for 10.9% of the island’s total population as of 2011. The island runs a large trade surplus largely because of its surplus with China, and its foreign reserves are the world’s fourth largest, behind China, Japan, and Russia.

In 2006 China overtook the US to become Taiwan’s second-largest source of imports after Japan. China is also the island’s number one destination for foreign direct investment. Three financial memorandums of understanding, covering banking, securities, and insurance, took effect in mid-January 2010, opening the island to greater investments from the mainland’s financial firms and institutional investors, and providing new opportunities for Taiwan financial firms to operate in China. Closer economic links with the mainland bring greater opportunities for the Taiwan economy, but also poses new challenges as the island becomes more economically dependent on China while political differences remain unresolved.