Despite various negative factors affecting the international economic situation in the first half year of 2011, the global economy steadily revived and the domestic economy continued to grow steadily at a 5.54% rate. However, starting from the second half of the year, the European debt crisis has abruptly become a major threatening factor to the international economy. Major forecasting agencies recently adjusted down the growth rate of the global economy in 2011 and 2012. As for the domestic economy, leading indicators continue to decrease, reflecting the slow growth of economic activities. We estimate the 2011 real GDP growth rate to be 4.38%.  The worsening global economic environment will further hold down the Taiwan economy to grow at 3.81% for 2012.

In terms of private consumption, the slow growth of the domestic economy has affected consumer confidence. With the negative impacts of lower stock prices and working-hour reduction, it is estimated that the domestic annual growth rate of real private consumption will be adjusted down from 3.38% in 2011 to 2.72% in 2012. Furthermore, due to the adverse effects of the international economic situation, business investment is expected to decrease, as is private investment. However, with government’s efforts to promote investment and private participation in public construction, the investment spending is expected to increase. Therefore, it is estimated that the annual growth rate of private investment will still grow steadily and reach 1.91% in 2012 from -2.36% in 2011.

Regarding foreign trade, the European debt crisis continues to have a negative impact on global demands; hence the export to China, Japan, and Europe was declining in November 2011. However, with over 90% zero tariff products of ECFA early harvest list starting next year, the export momentum is expected to be increased. It is estimated that Taiwan’s annual growth rate of real goods and services export will reach 5.15% in 2012. As for the import, due to the negative effects of decline on business investment, the annual growth rate of real goods and services import is expected to drop to 2.2%.

In terms of price, with the slow growth of the global economy, the prices of international crude petroleum and raw materials have dropped. Meanwhile, as European countries continue to adopt tight fiscal policies to control deficit, the global demand is expected to decline; the expected inflation remains within reasonable limits. The annual growth rate of the Taiwan’s Consumer Price Index in 2012 is expected to drop slightly from 1.35% to 1.16%. Also, the annual growth rate of the Wholesale Price Index is expected to drop from 4.25% to 2.35%. As for the money supply, with the sufficiency of domestic capital funds, the annual growth rate of the money supply is expected to grow steadily in 2012 with 5.98% of narrow money supply (M1B) and 5.24% of broad money supply (M2). 

In conclusion, the European debt crisis has exerted a significant influence on the momentum of Taiwan’s foreign demands. Fortunately, the U.S. economy is expected to continue to grow, albeit slow, and the China-leading emerging economies in Asia are likely to still perform relatively well in 2012. It is estimated that Taiwan’s GDP growth rate will remain at 3.81% next year. Looking ahead, the credit issues of sovereign debts in Europe, the possibility of a hard-landing of China’s economy, the fragility of economic recovery in the U.S. and the uncertain issues in Iran are worth observing closely in the future. Taking forecast error and uncertainties into consideration, the 50% of GDP interval forecast is between 2.07% and 5.64%.