The government’s hasty introduction last week of a consumer shopping voucher plan right before disclosing that the nation’s GDP growth could drop to a seven-year low of 1.87 percent this year sent a clear message: The economic slowdown is a lot more severe than expected.
The latest GDP data was a wake-up call to the government to the adverse impact of the global credit crisis and its implications for Taiwan’s economy. It took longer than expected for the government to recognize the peril and its prediction of a mild economic recovery in the second quarter of next year was much more optimistic than the predictions of many economists.
The latest estimates by the Directorate-General of Budget, Accounting and Statistics (DGBAS) show that Taiwan’s GDP growth contracted 1.02 percent in the July to September quarter because of a broad-based weakness in private consumption, private investment, trade and government investment. At the same time, the data suggested the economy was approaching a recession as it predicted GDP growth would continue shrinking into the first quarter of next year.
But the government’s relatively upbeat forecast of 2.12 percent GDP growth for next year — compared with bearish estimates made by some foreign brokerages such as declines of 0.4 percent from JPMorgan, 1.1 percent from Credit Suisse and 2 percent from Goldman Sachs — signals the government may be overoptimistic about its handling of the problem. Its prediction relies on the assumption that its series of measures to stimulate the economy are feasible and effective and that it can successfully implement them.
Based on the statistics agency’s calculation, the 2.12 percent growth forecast includes an increase of 0.64 percentage points from the proposed NT$82.9 billion (US$2.5 billion) consumer vouchers program. It also includes 1.59 percentage points from a new but unspecified NT$400 billion in infrastructure spending and another boost of 0.5 percentage points made possible by the unrealistic expectation of the daily arrival of 3,000 Chinese tourists.
In other words, excluding the anticipated contribution from the government-engineered stimulus, GDP growth could be zero percent or even fall into negative territory next year. It is very likely given the nation’s poor track record in executing government infrastructure planning and the likelihood that the consumer vouchers will only have a short-term effect. And the arrival of Chinese tourists is not under Taiwan’s control.
It is time to stop bluffing. The government should focus on making more realistic efforts to revitalize the economy instead of coming up with fancy ideas just to drum up popular support. One of the most urgent and daunting tasks the government faces is the possibility of mass job cuts as local companies may resort to business closures or corporate restructuring to cope with weakening domestic demand and a possible global recession.
The layoffs of 600 employees at consumer electronics retailer Tsann Kuen Enterprise Co (燦坤實業) late last week may mark just the beginning of a series of mass layoffs at local businesses ahead of the Lunar New Year holiday, in the wake of lawmakers calling for government rescue of dynamic random access memory (DRAM) chip and automobile companies lately.
Against this backdrop, the release of last month’s unemployment data tomorrow deserves the government’s attention after the ratio hit a four-year high of 4.27 percent in September. The real unemployment situation could be even more serious than the data shows, because there are an increasing number of companies who have encouraged employees to take unpaid leave to cope with the downturn.
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