Taiwan’s economic growth this year may fall well below 2 per cent, according to the island’s top academic institute Academia Sinica.
Academia Sinica has cut its economic forecast by half to 1.94 per cent, the lowest among major think tanks.
It is a sign that Taiwan’s economic gloom is far from over.
The country’s hope to keep this year’s economic growth at 4 per cent was dashed as the European debt crisis deepened.
Researchers say Taiwan’s exports were the hardest hit.
Ray Chou, a research fellow at the Institute of Economics, Academia Sinica, said: “China is now our biggest trading partner. China’s slowing growth, a result of the European debt crisis, will no doubt have a great impact on Taiwan.”
Taiwan’s exports to major markets like the US, Europe and China fell by 7 to 11 per cent in the first half of the year.
Domestic demand was also weak from higher oil and electricity prices, as well as the uncertainty over capital gains tax.
As a result, Academia Sinica has lowered this year’s private consumption by more than half a percentage point to 2.1 per cent.
Private investment is also estimated to contract by half a per cent this year.
But analysts expect the situation to slowly improve in the second half of the year.
“Fourth quarter is usually high season, so there is expected to be positive growth. But as far as a full recovery is concerned, now there’s really no sign of that,” Chou said.
In the mean time, analysts urge the government to take a more active role to keep the island’s economy above water. For instance, it should speed up the process of signing free trade agreements with other countries. This will help improve the island’s trade and investment with the rest of the world.