Taiwan's 2017 budget plan seen offering little boost for economy

[TAIPEI] Taiwan's sluggish economy is unlikely to get much of a boost from the government's modest budget increases planned for 2017 as long as global demand for the island's exports remain weak, analysts said on Friday.

Taiwan's new government on Thursday set out a draft budget for next year that increases infrastructure spending and overall spending.

Under the plan, the total budget has been set at TW$1.998 trillion (S$84.8 billion), up 1.1 per cent from this year, with infrastructure spending up 3.1 per cent.

But slightly higher domestic spending will not be enough to offset prolonged weakness in demand in Taiwan's major markets such as China, the United States and Europe, some economists said.

"The government is being prudent... The budget plan would do little to boost economic growth," said Kevin Wang, an economist of Taishin Securities Investment Trust, Taipei.

Taiwan has trimmed its full-year economic growth forecast for 2016 three times; it now stands at 1.06 per cent. The government is expected to revise the forecast later on Friday.

The central bank cut interest rates for the fourth time at its June quarterly meeting, adding rate cuts alone would not be enough to boost the export-reliant economy. Economists believe it will cut rates again before year-end.

The government has little room to take more fiscal policy or adopt stimulus plans as the ratio of debt to gross domestic product (GDP) is approaching its 40 per cent limit.

Citing Premier Lin Chuan, the government said it has to be cautious in spending taxpayers' money since it just took office in May.

The ratio would fall to 33.9 per cent next year from 34.1 per cent in 2016, it said.

REUTERS