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Recession may last until 2011, analysts predict

Taiwan’s projected economic recession may persist into 2011 as external economic shocks continue to deteriorate, analysts said.

Wang To-far (王塗發), an economics professor at National Taipei University, said the current international financial turmoil was unprecedented and that Taiwan was unlikely to rebound quickly, as slowing demand from the world’s leading economies would hurt the nation’s export-oriented economy.

The global economic downturn has spread to large financial institutions and has affected consumer-related industries, such as electronics, clothing and shoes, leading to a contraction in export orders for Asian countries, said Nicholas Kwan (關家明), regional head of research for Asia at Standard Chartered Bank.

Kwan predicted that the overall situation would worsen in the first half of next year. However, if global financial woes could be solved by the first quarter of next year, Asian economies will likely bottom out sooner, he said, adding that US quarterly economic growth will not be able to reach between 2 percent and 2.5 percent until 2010 at the earliest.

The government projected last week that the economy would recover in the second-half of next year, but Wang said it was unlikely.

Citing IMF and The Economist reports, which both pointed out that next year’s global economy would be even worse than this year, Wang said he doubted that the nation’s economy would show a quick V-shaped recovery within a year.

He expects the local economy to hit bottom in the fourth quarter of next year, and stay weak for two more years before rebounding in the third year, forming a so-called U-shaped recovery.

Wang warned that if President Ma Ying-jeou’s (馬英九) administration continues to expand cross-strait economic and trade relations, facilitating more outflow of Taiwan’s capital and driving up the jobless rate, it will take longer for the nation’s economy to recover.

When asked whether the Taiwanese economy will become L-shaped, Wang said he believed it would not be that serious, as the world has only experienced two significant L-shaped recessions — one was the Great Depression and the other was Japan’s recession that began in 1990.

Taiwan is not likely to head into a deep and prolonged recession, because the nation is closely tied to the world economy, Wang said.

Kenneth Lin (林向愷), an economics professor at National Taiwan University, holds a similar view, saying the nation’s economic recovery will be U-shaped rather than V-shaped, and the recovery will not happen until 2011.

He also said the government was too optimistic to project 2.12 percent growth for next year.

Taiwan’s exports will inevitably decline sharply next year, while domestic investment and consumption are also not likely to see a turnaround, Lin said, adding that he expected the nation’s economy to contract next year.

Economic recovery — usually comes in three forms: V, U, or L-shaped. A V-shaped recovery refers to a quick rebound from a recession within a year. A U-shaped recovery takes between two and five years, while an L-shaped recovery takes more than five years.
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