Taiwan is likely to have slipped into recession, as evidenced by a general slowdown in economic activity this and last quarter, driving the central bank on Thursday to cut interest rates in a bid to reverse the downturn, economists said yesterday.
The rate cut, the first in six years, may do little if companies shy away from investment and consumers tighten their belts, economists said.
“We are definitely in a recession, given sustained declines of economic data, though some may disagree about its definition,” Yuanta-Polaris Research Institute (元大寶華研究院) chairman Liang Kuo-yuan (梁國源) said by telephone.
The EU defines recession as two consecutive quarters of negative economic growth, as measured by the seasonal adjusted quarter-on-quarter figures for real GDP.
Taiwan already recorded a downturn of 6.56 percent last quarter in terms of the seasonally adjusted annual rate and is bound for further contraction this quarter, whether compared with last quarter or a year earlier, several research institutes have predicted.
That would signify a recession and suggest a need for stronger measures.
However, the Directorate-General of Budget, Accounting and Statistics (DGBAS) gauges the nation’s economic health by comparing current data with their levels in the previous year.
By that account, the shadow of recession is still escalating, especially if international crude prices fail to stabilize, hurting non-tech exports, despite an expected rebound in electronics shipments next quarter, Taiwan Institute of Economic Research (TIER, 台經院) economist Gordon Sun (孫明德) said.
The government’s forecast last month of 0.1 percent growth for this quarter looks increasingly unachievable, after latest data about exports, industrial production and commercial sales all fared worse than expected, a DGBAS official who declined to be named told the Taipei Times yesterday.
The official declined to elaborate, saying that the DGBAS will update its economic growth data for Taiwan at the end of next month.
Economists said interest rate cuts cannot spur private investment interest if the nation continues to concentrate on a few industries and export markets, given that global trade has slowed this year.
Exports account for 70 percent of Taiwan’s GDP — with 40 percent of the nation’s outbound shipments — mostly electronic devices — destined for China, according to government data.
“Monetary policy is no substitute for a structural reform if the government aims to reinvigorate the economy,” Liang said.
Local companies must actively tap Internet-linked business opportunities that promise higher added value, rather than struggle with low-margin business, he said.
KGI Securities Co (凱基證券) economist Andrew Tsai (蔡耀德) said the economy has sank into recession, if only technically, to which a rate cut of 12.5 basis points provides no remedy.
“A lack of investment opportunities drives up savings and lower borrowing costs cannot reverse the situation,” Tsai said.
A further rate cut would be counterproductive because it could send a negative message about the economy and deepen cautious sentiment, as happened when Wall Street stumbled after the US Federal Reserve left its rate unchanged last week, Tsai said.
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