The nation marked the beginning of the Year of the Dog with an economy growing at 4.08 percent, up from 3.8 percent at the beginning of last year, with export momentum strong and private consumption increasing steadily, according to government estimates.
Research institutions also agree that the economy will expand this year. Both the Taiwan Institute of Economic Research (
With these positive numbers, officials at the Ministry of Economic Affairs can seemingly relax a little. But if they look into the composition of GDP -- the sum of government consumption, government investment, private consumption, private investment and net exports -- they will know that they have more work to do.
EXPORTS
Of these components, the most important one for Taiwan is net exports, but this sector is feeling pressure from a number of crises.
One heavy hit to the nation's export-dependent economy last year was a big fall in the trade surplus in the first two quarters, reaching a mere US$400 million, according to statistics from the Directorate General of Budget, Accounting and Statistics.
But for the whole year, the trade surplus rose 27.2 percent to US$7.79 billion after stronger-than-expected demand for electronics and computer products in the third and fourth quarters, the statistics agency reported.
Economists attributed the surplus dip in the first half to the local manufacturing industry's massive migration to China for cheaper labor. Because these companies tend to receive orders in Taiwan and export goods from China, export orders can no longer represent export performance, they said.
"It is important to note that the divergence between actual export growth and export order growth has become increasingly evident in recent months," Deutsche Bank said in its latest edition of Asia Economics Daily on Jan. 24, citing an increase in export orders of 24.6 percent in December, while export growth grew only 15.4 percent in the same month.
Even so, export orders are still a useful measure for revenue outlook for Taiwanese companies. For 2005 as a whole, export orders rose 19.2 percent to US$256.39 billion from the previous year, while total exports rising 8.8 percent to US$189.39 billion, according to government statistics.
However, the overseas relocation of production operations for local manufacturers was still an important factor that shadowed the economy this year, with the model of "receive orders in Taiwan, produce in overseas bases [mainly China]" accelerating in recent years. In 2001, local manufacturers produced 16.7 percent of products overseas, but this percentage rocketed to more than 40 percent last year, according to ministry statistics.
The appreciation of the New Taiwan dollar, which will make exports more expensive and less competitive, was another blow to the sector.
Academia Sinica predicted that the NT dollar will rise against the US dollar to NT$32.68 for the whole year. Last Friday, however, the last trading day before the Lunar New Year holiday, the local currency had already risen to NT$31.985 against the greenback.
In addition to the potential decline of exports, rising imports -- mainly caused by rocketing oil prices -- will continue to eclipse the trade surplus, especially given that Taiwan imports nearly 98 percent of its energy.
SERVICES SECTOR
As for other components of GDP, private consumption will grow by 3.02 percent according to Academia Sinica estimates, government consumption will climb 0.81 percent, private investment will rise 3.35 percent and government investment -- which constitutes one-fourth of total investment -- will jump nearly17 percent.
"Given Taiwan's small market, the nation should still focus on the export sector to sustain economic growth," said Chou Ji (
One policy that could boost exports in services is lifting the general ban on Chinese tourism, a proposal which the government has discussed but which may fall apart after President Chen Shui-bian (陳水扁) changed course in cross-strait policy to "active opening, effective management" in his New Year's address, Chou said.
Wu Chung-shu (吳中書), an Academia Sinica economist, said that in addition to bolstering the output value of service exports, opening up to Chinese visitors will help reduce unemployment by providing a substantial number of entry-level jobs to people with lower levels of education and training who make up the largest percentage of the unemployed. The improving job market will further stimulate private consumption and drive growth in GDP, Wu added.
The nation's jobless rate reached 4.13 percent last year, down from 4.44 percent in 2004, according to government statistics.
Taiwan has shifted from a pre-1970s manufacturing-led economy to a services-based economy. In the third quarter last year, the services sector contributed 73.9 percent of GDP, according to government statistics.
Despite this, government attempts to spur on the sector seem not to match the speed of growth. For many years, the government has turned a deaf ear to requests from local and foreign business groups for reform.
The government launched the Service Industry Development Guidelines and Action Plan (
However, "The government should speed up progress in deregulating the business sector," Chou said.
Liang Kuo-yuan (
"We still have a long way to go to deliver world-standard services," Liang said. "We hope the project is not just another slogan."
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