The national economy in 2004 will likely record 5.0% GDP growth for the year, despite a slower growth in the second half forecast at 4.6% due to a slowdown in export growth and delayed recovery of domestic demand.

In the second half of 2004, a weak recovery of consumption and facility investment is expected, while the construction sector is expected to slow down sharply. Consumer prices are projected to register a 3.8% annual rate, with a 4% increase expected in the second half propelled by international oil price hikes.

Meanwhile, export growth is expected to decline in the second half of this year as external conditions turn less favorable. Risk factors are high oil prices, China's retrenchment policies and increases in US interest rates. The current account balance surplus is expected to record US$23 billion for the year. Economic growth for 2005 is forecast at 4.4%. Although a gradual recovery of domestic demand is expected with increased expansionary government policies, export growth is expected to decelerate, thus lowering the overall growth rate. Current account surplus is forecast to record only US$10.3 billion for the year. Consumer prices are likely to rise at a 3.3% annual rate owing to the slowdown in economic growth, foreign exchange rate appreciation, and stabilizing international oil prices.

As for future policy tasks, a little less political bickering is called for. The very divisive current political strife on various issues including the abolition of the National Security Law, relocation of administrative capital, and investigation of historical issues is depressing broad business as well as consumer sentiments. A more stable political and social atmosphere appears to be a precondition for a sustainable economic revival. An expansionary macroeconomic stance should be maintained in both fiscal and monetary policies. In addition to budgetary stimulus, tax cuts should be considered as part of these measures. The efforts to establish healthy labor-management relations based on the rule of law should be redoubled.

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