With private consumption lethargic and excessive savings expected to hit a two-decade high next year, the chief government economic planner is to talk with retailers this week to gain a better grasp of why consumers refuse to spend.
On Friday, Council for Economic Planning and Development Chairman Chen Tian-jy (陳添枝) telephoned General Chamber of Commerce (全國商業總會) chairman Chang Ping-chao (張平沼), asking him to arrange meetings with grocers and retailers this week to help the council find remedies to reverse slumping consumer confidence.
The Directorate-General of Budget, Accounting and Statistics (DGBAS) recently lowered the GDP growth forecast for the second quarter from 4.57 percent to 4.32 percent and attributed the trim mainly to weaker-than-expected domestic demand.
Domestic demand posted a decline of 1.72 percent between April and June, sinking GDP by 1.46 percentage points, the DGBAS report showed. Food spending reported a drop of 1.87 percent, while private investment and capital equipment imports fell 9.37 percent and 12.7 percent respectively, the report said.
Chang told reporters he would try his best to arrange the meetings before Thursday.
Chen’s move marked yet another government effort to pull the economy out of the doldrums after cyclical business indicators flashed a slowdown signal in July with withering domestic demand blamed for the trend.
A report by the Ministry of Economic Affairs released on Aug. 22 showed that the retail sector suffered a 3.81 percent decline in business volume year-on-year last month, and the drop is expected to deepen in the coming months on sustained inflationary pressures.
Norman Yin (殷乃平), a professor of money and banking at National Chengchi University, said consumers would continue to refrain from spending as long as their incomes remain unchanged and commodity prices keep rising.
Yin predicted that the inflation rate would exceed 4 percent this year although the DGBAS put the figure at 3.74 percent.
The sense of insecurity has prompted people to keep their money in the bank. The DGBAS projected that the national savings rate would reach 30.6 percent next year while the excess savings rate would hit NT$1.3 trillion (US$41.3 billion), a ratio of 9.5 percent to GDP, both the highest since 1989.
Excess savings have hit NT$1.1 trillion, or a rate of 8.5 percent, this year, based on the DGBAS data, which has prompted the central bank to use public market operations and various instruments to absorb this huge glut of idle funds from the money markets.
Economists have said that the key to resolving the problem of excess savings is how the government boosts domestic investment and private consumption.
This has become a more urgent task for Taiwan in the second half of the year as the country is facing weakening demand of its exports because of the global slowdown. The government’s latest data showed on Aug. 25 that export orders grew 5.52 percent year-on-year in July and marked the slowest pace since May 2003.
Kevin Hsiao (蕭正義), head of UBS Wealth Management Research in Taiwan, said it is unhealthy for an economy to draw its growth from exports alone as that makes it susceptible to external influences.
“Heavy dependence on exports leaves Taiwan ill equipped in coping with surging fuel and raw material costs that are eroding corporate profits and the nation’s economic performance,” Hsiao said.
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