Mon, Dec 11, 2006 - Page 8 News List

Editorial: Let's now turn to the economy

Now that the heated battles for Taipei and Kaohsiung mayors are over, it's time to change the subject from vehement politics to the other pressing issues that we face every day.

The end of the year is approaching and our economy has fared relatively well thus far, but there's still room for improvement.

In foreign trade, for instance, exports last month surged to the fourth-highest level in history at US$19.54 billion and the Ministry of Finance has estimated that the whole-year surplus would approach US$20 billion, the highest since 2004. But the problem of Taiwan becoming over-dependent on China remains, as shipments to Hong Kong and China last month increased to US$8.01 billion, or 41 percent of the total, making it the highest proportion on record.

On the job market front, the unemployment rate has stayed comfortably low this year and dropped to 3.9 percent in October. The government has predicted that the full-year figure would remain below 4 percent.

The government is aiming for 4.6 percent growth in GDP next year after a projected gain of 4.39 percent for this year.

But the public still worries over the economic outlook. The latest consumer confidence index showed that people's faith in the economy had dropped to a five-year-low last month -- mainly on growing concern over household finances -- indicating that consumers are not so sure whether to save or spend.

The central bank's monetary policy is working well, delivering low and stable inflation with a price growth of just 0.59 percent for the first 11 months. Fiscal management has also been exemplary and the Ministry of Finance has slashed the government's budget deficit forecast this year by nearly 80 percent to approximately NT$50 billion (US$1.55 billion) on the back of rising tax revenues and declining expenditures.

The stock market looks promising too, as foreign investors continue pouring funds into Asia on expectations that the region can withstand a US economic slowdown next year. After seeing it record a fresh six-year high lately, the benchmark TAIEX could have a taste of the 8,000-point level by the year's end -- if foreign investor interest can be sustained and the election dispute in Kaohsiung is resolved expeditiously.

Investor confidence will remain unshaken as long as positive economic and corporate fundamentals can be maintained -- all of which are related to key factors such as an improvement in the investment environment, an upward trend in commodity prices and ongoing efforts to mitigate the uncertainties associated with cross-strait policy.

The property sector, meanwhile, has been vibrant, due to the emergence of real estate investment trusts, cyclical demand, foreign investors and the anticipated opening-up to Chinese investors.

But statistics released by the Council for Economic Planning and Development last week revealed that consumer confidence in housing prices dropped in the third quarter, suggesting the housing sector may be losing steam due to weak demand.

While weakening demand may help keep housing prices from overshooting -- even though housing costs have skyrocketed 77.8 percent over the past 20 years -- and so improve affordability, the same statistics indicate an increasing number of homebuyers are banking on mortgage loans for their homes.

That said, an upward trend in household debts and property-backed loans could spark financial instability. For a country that has just recovered from credit-card turmoil, the financial institutions should be more cautious about mortgage applications to prevent household debt from becoming another bad loans crisis.

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