If the stock market reflects confidence in the nation’s economy, then the plunge of 284.86 points, or 3.96 percent, in the benchmark TAIEX last week indicates that investors remain uneasy over former president Chen Shui-bian’s (陳水扁) money-laundering probe and over continuing fallout from the global credit crisis.
But investors have another reason to be concerned after the Directorate General of Budget, Accounting and Statistics (DGBAS) on Friday revised downward its economic growth forecast for this year to 4.3 percent from May’s estimate of 4.78 percent, signaling that the economy is facing strengthening headwinds.
With weakening domestic demand and falling exports, the statistics bureau said the economy grew in the second quarter by 4.32 percent year-on-year, the slowest in five quarters, after an annual increase of 6.25 percent in the first quarter. For the second half of the year, growth is expected to further slow to 3.04 percent for the third quarter, the weakest since the first quarter of 2005, before seeing growth of 3.75 percent in the fourth quarter.
The latest forecast did not surprise the market, confirming concerns that further economic slowdown is unavoidable amid a worsening global economy.
Exports form the backbone of Taiwan’s economy. For the second half they are forecast to grow only 6.29 percent year-on-year, after an annual increase of 18.08 percent in the first half. So there appears to be no reason for investors to be optimistic about the remainder of the year. The question then becomes how long this economic slowdown will last.
Growth in domestic investment and private consumption could play a central role in supporting the economy. The problem is whether growth momentum is strong enough to offset weakening exports.
Not likely. Companies in Taiwan have recently become more conservative with their investment plans. Recent polls among local firms show that many have attempted to maintain a slim workforce and avoid hiking salaries to see through this difficult situation.
Under these circumstances, growth in household income is likely to stagnate, while inflation will continue to erode purchasing power, further dampening private consumption. According to the DGBAS forecast, private consumption this year will grow 1.38 percent year-on-year, compared with 2.55 percent growth last year.
The latest retail sales data released by the Ministry of Economic Affairs on Friday depicted exactly this picture of fading private purchasing power, with total revenues earned by local companies in the retail sector dropping 3.81 percent to NT$276.1 billion (US$8.8 billion) last month from a year earlier, the largest annual decline since 2002.
Without a doubt, the US slowdown has spilled over to major economies such as Europe and Japan, compounding the effect on Taiwanese exports. While President Ma Ying-jeou’s (馬英九) government seems optimistic about the contribution of future Chinese tourists to the economy, its recovery could be delayed if unfavorable external demand and inflationary pressure persist.
Investors are looking for more clues on the economic outlook; for now these GDP figures will likely continue to depress sentiment in the stock market. The release of more data next week, including export orders and the index of leading indicators for July, will indicate whether the economy will decelerate sharply as year’s end approaches.
Could Asia be on the verge of a new wave of nuclear proliferation? A look back at the early history of the North Atlantic Treaty Organization (NATO), which recently celebrated its 75th anniversary, illuminates some reasons for concern in the Indo-Pacific today. US Secretary of Defense Lloyd Austin recently described NATO as “the most powerful and successful alliance in history,” but the organization’s early years were not without challenges. At its inception, the signing of the North Atlantic Treaty marked a sea change in American strategic thinking. The United States had been intent on withdrawing from Europe in the years following
My wife and I spent the week in the interior of Taiwan where Shuyuan spent her childhood. In that town there is a street that functions as an open farmer’s market. Walk along that street, as Shuyuan did yesterday, and it is next to impossible to come home empty-handed. Some mangoes that looked vaguely like others we had seen around here ended up on our table. Shuyuan told how she had bought them from a little old farmer woman from the countryside who said the mangoes were from a very old tree she had on her property. The big surprise
Ursula K. le Guin in The Ones Who Walked Away from Omelas proposed a thought experiment of a utopian city whose existence depended on one child held captive in a dungeon. When taken to extremes, Le Guin suggests, utilitarian logic violates some of our deepest moral intuitions. Even the greatest social goods — peace, harmony and prosperity — are not worth the sacrifice of an innocent person. Former president Chen Shui-bian (陳水扁), since leaving office, has lived an odyssey that has brought him to lows like Le Guin’s dungeon. From late 2008 to 2015 he was imprisoned, much of this
The issue of China’s overcapacity has drawn greater global attention recently, with US Secretary of the Treasury Janet Yellen urging Beijing to address its excess production in key industries during her visit to China last week. Meanwhile in Brussels, European Commission President Ursula von der Leyen last week said that Europe must have a tough talk with China on its perceived overcapacity and unfair trade practices. The remarks by Yellen and Von der Leyen come as China’s economy is undergoing a painful transition. Beijing is trying to steer the world’s second-largest economy out of a COVID-19 slump, the property crisis and