Thu, Mar 28, 2019 - Page 12 News List

Yuanta-Polaris warns of economic contraction

SYSTEMIC PROBLEMS:Taiwan’s reliance on low-margin intermediate goods exports, China’s slowing economy and global trade tensions could impact growth this year

By Crystal Hsu  /  Staff reporter

The nation’s economy is entering a contraction cycle, if it is not already there, as major economic barometers have taken a downturn since the final quarter of last year and might continue to flounder for a while, Yuanta-Polaris Research Institute (元大寶華綜經院) said yesterday.

The Taipei-based think tank issued the warning after releasing its forecast of 2.1 percent GDP growth for this year, down from last year’s 2.63 percent.

“Taiwan might manage 2 percent economic growth, but its momentum has noticeably weakened,” institute president Liang Kuo-yuan (梁國源) said.

The softening became evident in October last year, when global equity markets crashed and international research institutes downgraded the world’s GDP growth on concern about economic risks, he said.

The clouds remain this year, namely escalating trade tensions and tariffs, Brexit uncertainty, global financial tightening and an accelerated slowdown in the Chinese economy, he said.

Taiwan’s purchasing managers’ index, leading economic gauges and exports started to lose steam in the second half of last year and slipped into the negative zone over the past few months, Liang said.

Heavy dependence on the manufacture of low-margin intermediate goods, or semi-finished products mainly used in smartphones by global technology brands, has rendered the nation’s economy fragile and susceptible to global cyclical corrections, he said.

The business model has come under challenge as companies in the US and China cut dependence on global supply chains, Liang said.

In addition, slower GDP growth around the world has dampened global trade and investment, and weighed on Taiwan’s exports, he said.

Yuanta-Polaris expects outbound shipments to grow 2.22 percent this year, slowing from the 5.92 percent achieved last year.

China and the US are the two largest markets for Taiwanese exports, and tariff disputes between the two have unnerved local manufacturers, Liang said.

If Taiwan hopes to untangle itself from China, it would need to have some kind of assurance, he said.

The government’s New Southbound Policy holds some degree of promise, but shifting supply chains from China to Southeast Asia and India cannot happen overnight, and most of these countries lack the transportation infrastructure that China has, he said.

Together, ASEAN markets have become Taiwan’s second-largest trading partner and should continue to be investment destinations for Taiwanese investors, so the government’s hope of capital repatriation from China might prove modest, Liang said.

The government is likely to try to stimulate GDP growth with an 11.96 percent increase in its investments, while public enterprises are likely to lend support by raising their investment by 8.63 percent, the institute said.

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