The business climate and market sentiment often change rapidly, leaving investors with little time to catch their breath and reflect on exactly what’s going on.
Many investors were caught unaware by the unexpectedly slow growth of exports last month, which signaled that the nation’s economic growth was set to weaken in the second half of the year.
On Thursday, the Ministry of Finance reported that exports last month grew at a pace of 8 percent year-on-year to US$22.87 billion, which not only decelerated substantially from a 21.3 percent rise to US$24.35 billion in the prior month, but also ended 11 months of double-digit export growth since August last year.
With imports increasing 12.3 percent year-on-year last month to US$23.28 billion because of soaring oil prices, Taiwan reported a trade deficit of US$410 million last month — the nation’s first trade deficit since March 2006.
The latest external trade figures caught people off guard because the data came just as the prices of global crude oil dropped nearly 20 percent from a record US$147.27 per barrel on July 11 and as prices of several grain commodities dropped substantially in recent weeks, which somewhat soothed public concern at rising inflation.
The latest trade data showed an across-the-board weakness in Taiwan’s export performance. But, most importantly, slowing exports to China (Hong Kong included) last month — a 4 percent increase year-on-year last month following a 25.5 percent rise the previous month — confirmed that the global slowdown has begun to take a toll on China and has negatively affected the demand for Taiwanese goods from a country that is already our largest export destination.
The recent plunge in the value of the NT dollar against the US dollar — dropping by NT$0.683, or 2.25 percent, over the past nine consecutive sessions — demonstrated similar bearish sentiment in the foreign exchange market.
If this pessimistic mood continues, it is likely we will see the local currency weaken further, property markets turn more bearish and domestic consumption diminish, not to mention the prospect of more foreign capital being removed for high-yield investments elsewhere.
The central bank, which has been raising its benchmark interest rates to fight inflation for a consecutive 16 quarters since October 2004, could face the dilemma of choosing to continue to focus on inflation controls with more rate hikes or shift its focus to stimulating the economy via rate cuts.
On the one hand, inflation driven by rising import costs remains a concern because the latest government data show that the consumer price index (CPI) climbed 5.92 percent year-on-year last month, marking its highest level of growth since September 1994. Excluding volatile vegetables, aquatic products and energy prices, the core CPI growth rate also hit a nearly 12-year high of 4.06 percent last month, indicating that the pressure on consumer prices remained high.
On the other hand, Taiwan’s export-oriented electronics companies are likely to benefit from a falling NT dollar and that in turn will help boost the economy. But these companies’ gain from a favorable currency exchange could be offset by the downturn of the global economy in the next few months if energy and materials costs remain high.
The nation’s policymakers should move fast to boost domestic demand and consumption, as global economic difficulties will most likely continue well into next year and as economic optimism over improved cross-strait relations is fading fast.
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