The government's latest economic report showed that growth in consumer spending has slowed to an appalling pace over the past three years. Economists have called on the government to take this as a warning and stressed the need to boost consumer spending to help make up for a projected slowdown in export growth in the wake of a softening US economy. The question is how.
According to the Directorate General of Budget, Accounting and Statistics' report on Thursday, consumer spending rose a mere 1.38 percent in the second quarter from a year earlier -- lower than its original forecast of 2.31 percent -- mainly because of the negative impact of consumer loan defaults. As a consequence, the bureau trimmed its GDP forecast for this year to 4.28 percent from the 4.31 percent it predicted in May.
The bureau attempted to strike a positive note by saying the economy is getting some relief as the credit card debt problem is likely to ease off in the fourth quarter. However, that only renewed public concern that a shrinking consumer loan business could affect the economic outlook, which has already been dealt a blow by soft private investment.
Are these fears justified?
According to the latest government figures, banks are still reluctant to ease restrictions on personal credit, while they are busy writing off NT$34.6 billion of bad credit card loans in the second quarter, which were nearly four times the amount of NT$9.6 billion that was reported a year ago. The number of new credit cards issued in the first half of the year also showed a sharp drop to about 2 million -- almost two-thirds lower from a year earlier.
Moreover, except for the housing market, domestic consumption as a whole has been disappointing, with vehicle purchases declining 26.4 percent in the second quarter from a year earlier, for instance. What is worse, workers' salaries are unlikely to rise this year while public concern over spiraling crude oil and raw material prices is intensifying.
With the economy undergoing structural changes as manufacturing jobs move overseas, and the cumulative effect of energy and electricity price increases affecting disposable incomes, the bureau predicted that consumer spending may only increase 1.71 percent this year. This is remarkably low compared with a growth rate of 5 percent and above some five years ago.
Can the economy withstand such weak consumer spending and rely solely on export growth to boost its momentum? Economists have warned that depending solely on strong exports to offset weak domestic consumption would put the local economy in a vulnerable position when demand from overseas markets such as the US turns slow.
What can the government do then to revitalize consumer spending?
Cures to boost consumer spending abound. To start with, the government and the banks may need to reconsider availability and access to consumer credit. Further developing the services industry to expand private consumption is another option as this industry contributed more than 70 percent to the nation's GDP last year, according to government data.
However, instead of confronting these economic challenges, the nation as a whole has been distracted by news of political unrest ranging from various attempt to oust President Chen Shui-bian (