The Economic in Taiwan Essay Example | Topics and Well Written Essays - 2250 words

The Economic in Taiwan - Essay Example As a result, even in the best case scenario, economic growth in the region will suffer into the second half of 2003. The rising impact of SARS (in line with a rising number of cases) on private consumption, coupled with a lower than expected rise in GDP growth in the first quarter of 2003, has led us to reduce our forecast for economic growth in 2003 as a whole from 3.7% to 3.2%. A stronger recovery in both domestic and external demand will result in GDP growth of 5.4% in 2004. Taiwan is unlikely to face significant inflationary pressures until late 2003 as domestic demand remains sluggish and international inflationary trends continue to be benign. Entry to the World Trade Organisation (WTO) in January 2002 has reduced imported inflation and will continue to put downward pressure on prices in the forecast period. Following the US-led war in Iraq, prices on international oil markets have eased. As a result, we expect the consumer price index to rise by an average rate of only 0.3% year on year in 2003. Stronger domestic and international demand for goods and services are expected to revive price pressures in 2004, lifting inflation to an annual average of 1.4%. We expect the CBC to allow the currency to remain weak, mainly in order to maintain the competitiveness of Taiwan's exports against those of Japan and South Korea. However, exports are unlikely to receive a major boost as a result, owing to general weakness in world demand, but the measure will help Taiwan producers to maintain market share. The CBC will allow the New Taiwan dollar to appreciate significantly only once there is sufficient evidence of a sustained recovery in GDP growth. Accordingly, in 2003 the currency will strengthen slightly in line with faster GDP growth late in the year, and as a result, average NT$34.79:US$1. Once the recovery in GDP growth gains momentum in 2004, the currency will appreciate further, to an annual average of NT$34.24:US$1 in 2004. The rate of growth in merchandise exports in US dollar terms has recovered since the second quarter of 2002. However, US demand-- the US is the destination for close to one-quarter of total exports--for Taiwan's exports has remained weak since the beginning of 2003. In addition, some of the year-on-year growth in exports during 2002 reflected base effects of comparison with 2001, when Taiwan's US dollar export earnings suffered double-digit declines. (Chu 79-104) The weak Taiwan dollar policy adopted by the CBC, mainly owing to the weakness of the Japanese yen, will not be enough to strengthen exports significantly. Nevertheless, exports to Asia, in particular China, will continue to provide some stimulus to the country's external sector. Imports have also been rising since mid- 2002. This trend is likely to be interrupted by fragile domestic demand (not helped by SARS) and the loss of momentum in export growth, although import growth is still expected to outpace export growth in 200 3-04. As a result, the