Fears of a gradual slowdown in global trade triggered by the US credit crisis, compounded by concerns over an abrupt downturn in China after the Olympics, have recently caused most Asian economies to worry that export demand will dwindle in the second half of the year.
The latest reports of a sudden contraction in economic growth quarter-on-quarter for Japan, Singapore and Hong Kong, as well as slowing growth in Taiwan, India, Malaysia, Thailand and the Philippines, indicate that the slowdown is spreading across Asia.
What has especially come to haunt policymakers in this region are fears that lackluster domestic demand will fail to buffer weakening external trade in the months ahead.
It is under these circumstances that the governments of several Asian economies have recently introduced, or are considering, economic stimulus packages to help their people and businesses cope with the anticipated slowdown.
On Friday, the Japanese government unveiled an ¥11.7 trillion (US$107.03 billion) stimulus package, following similar developments in Singapore, Hong Kong and Thailand. Taiwan is considering a similar package after the index of leading indicators last month dropped to its lowest level this year, among signals of a further slowdown.
Japan’s package includes extra government spending, loan guarantees to small and medium-sized enterprises, tax cuts for low-income earners and people with housing loans, as well as discounts on expressway tolls. Its main goal is to lessen people’s financial burdens and strengthen consumer purchasing power as well as help domestic sectors affected by rising oil prices.
The details of Taiwan’s stimulus program are yet to be revealed. But based on information gathered from several government agencies, the planned program would mostly focus on how to boost domestic investment with tax holidays for the manufacturing industry, more housing and construction loans from banks and more foreign investment.
Taiwan’s stimulus package is not likely to succeed in boosting the economy and solving social problems in the short term, however.
Take the proposed measure to increase the housing loan ceiling extended by banks. This could only be wishful thinking on the part of the government to boost the real estate sector, because banks at this point are not likely to extend much credit after becoming bearish on the domestic housing market.
Last week, consumer confidence data for the housing sector showed that potential buyers are adopting a wait-and-see attitude. Even if buyers decide to cut a deal and take out a loan, banks will launch stricter checks on applicants and probably grant smaller loans than applicants expect in a bid to avoid loan defaults. Moreover, this measure will favor potential buyers, not those who already have housing loans.
Japan’s proposed tax cuts for people with housing loans, on the other hand, will reduce the credit problems financial institutions are facing while simultaneously safeguarding borrowers.
The implementation of the government’s domestic investment-oriented stimulus program is likely to ensure Taiwan’s economy will grow steadily in the long run. Before rolling out its detailed package, however, the government should learn from Japan’s efforts to support household finance, or learn from the US, Singapore and Hong Kong’s tax refund plans to revitalize consumer spending.