Last week, a CLSA Asia-Pacific Markets report said Taiwan’s economy would shrink 11 percent this year, which not only represents a substantial downward revision from the foreign brokerage’s previous forecast of a 2.7 percent contraction, but would also make the nation the worst performer among major economies in Asia.
Taiwan, like its rivals in the region, depends on a prosperous world market for information-technology products and other items that support its economy. It is clear that the global downturn will have an adverse impact on the country.
If CLSA’s projection of an 11 percent GDP contraction materializes, it would be a new low after Taiwan recorded declines of 2.17 percent in 2001 and 1.38 percent in 1974 because of the oil crisis that year.
But, since the forecast is by far the most pessimistic among all predictions made by either local or foreign institutions, it soon raised eyebrows among government officials and economists. The nation’s top economic planner, the Council for Economic Planning and Development — which targets 2.5 percent economic growth for Taiwan this year — criticized the CLSA figure as “exaggerated” and “ridiculous.”
The government’s latest forecast predicted GDP growth would be 2.12 percent this year. Its statistics bureau will disclose the growth figure for the final quarter of last year and its projection for this year on Feb. 19, after it said in November that the economy shrank 1.02 percent from a year earlier in the third quarter, the first contraction since 2003.
Many economists have recently adjusted downward their predictions in response to the deteriorating global downturn. But the great uncertainties about the impact of global financial turmoil have made it even harder than usual for economists to offer accurate forecasts.
Nonetheless, the important issue is not how accurate CLSA’s figure is, but the main reason behind its gloomy forecast: a collapse in the nation’s exports.
People have to face the cruel reality that our economy depends too heavily on exports, which account for about 60 percent to 65 percent of GDP, and it may be a tipping point for the nation to seriously reconsider how to adjust its fundamental economic and financial structures to address Taiwan’s long-term economic development. Second, those who have put their faith in China’s economy should understand that its exports and manufacturing output have continued to fall in recent months, and the global economic slowdown has yet to bottom out.
Obviously, years of investment in China has made Taiwan overly dependent on it, and December’s plunge of 54 percent in shipments to China including Hong Kong, which accounted for about 40 percent of the nation’s exports, should sound alarm bells.
The global slowdown could worsen and lead to a retaliatory trade war among nations, given the development of protectionist tendencies among several governments as a way to combat the economic downturn and rising unemployment at home.
Most of the time, doomsayers are not welcome, even though some of their forecasts have proven true long after they made the remarks. At the end of 2000, when then newly appointed minister of economic affairs Lin Hsin-yi (林信義) said the public needed to be prepared for hardship in 2001, there were few people really paying attention to what had given rise to his warning, and economists maintained their forecasts for 2001’s GDP growth ranging from 4 percent to 6 percent. And what happened? Taiwan saw a GDP contraction of 2.17 percent in 2001, a record decline at the time.