Taiwan's Economy Will Grow 3.96% in 2006: TIER

Taipei, Nov. 11 2005 (CENS)--With global trade expected to improve next year, Taiwan's economy will grow at a rate of 3.96%, according to a forecast by the Taiwan Institute of Economic Research (TIER).

Meanwhile, the institute upwardly revised its estimate for Taiwan's economic growth this year to 3.51%, climbing from the original 3.31%, thanks to better-than-expected performance in the third and the fourth quarter. The economy, for instance, is expected to grow 4.23% in the fourth quarter, the highest quarterly growth this year.

With Taiwan's continuing improvement in employment figures, the real income and purchasing power of local consumers is not likely to decline, and private consumption is expected to grow 3.07% next year, similar to this year's 3.09%.

However, Taiwan's high-speed rail line and other major construction projects will be completed next year, and there are no new major projects to succeed them. In addition, a majority of local industries will cut down on the scale of their major investments next year. Consequently, the growth rate of the island's fixed capital formation will drop to 3.42%, down from this year's 7.63%, according to TIER.

Fixed capital formation consists of private investment and government investment. Kun Min-hsin, director of TIER's second department, pointed out that government investment will grow 2.24% next year, much higher than the negligible growth of 0.4% this year. However, the growth of private investment will slow down to 4.1%, compared with this year's 9.66%.

Private investment recorded a high 28% growth in 2004, but has been on a slide ever since, due to the higher comparison base and the effects of the industrial business cycle.

TIER predicted that the consumer price index will grow 1.66% in 2006, and that the exchange rate for Taiwan's local currency will stand at US$1=NT$32.74.

As for foreign-trade, the island is projected take in a surplus of NT$18.5 billion, up from this year's NT$12.8 billion. The main factor likely to boost the surplus is a decline in imports, due to a reduction in the delivery of high-speed rail cars and of airplanes. Overall, foreign trade looks to maintain a steady performance.