Bad news has a habit of traveling far and Taiwan is again making international headlines because of its poor economic performance. In response to the drop in GDP, CNN invited analysts to look into Taiwan’s problems, while the Financial Times ran a short piece on the ailing Taiwanese economy, which is plunging deeper into a black hole.
Considering the drop in exports, the lack of proper government investment and the rapid decrease in private spending and investment, Taiwan’s GDP forecast could quickly be cut again.
Just as everyone was wondering whether the government would follow suit in adjusting its forecasts, the Directorate-General of Budget, Accounting and Statistics (DGBAS) lowered estimated foreign investment growth for last year to minus 5.09 percent and GDP growth for this year to minus 2.97 percent.
The DGBAS also said the economy shrank 8.36 percent last quarter, the largest quarterly drop ever. Exports last quarter also experienced negative real growth of 19.75 percent, with dropping more than 40 percent for two straight months.
Not counting workers asked by companies to take unpaid leave, unemployment levels have reached a five-year high of 5 percent. As of the end of last year, the unemployment cycle had been longer than 26 weeks for two consecutive months, which is longer than the six months needed to qualify for unemployment benefits, creating a three-year high for the average number of weeks a person is unemployed.
With global demand weakening, we cannot rely on uncertain foreign markets to revive the economy — especially not the US, which is still deep in the crisis that began on its soil and is being exacerbated by protectionism and calls for consumers to buy US-made products.
The second wave of the financial crisis is sweeping countries like Ireland, Iceland and the UK. Eastern European nations are developing credit problems and the rest of Europe seems to be following suit.
With Western countries busy trying to combat the crisis, the lack of global demand is challenging the development model used by Taiwan and other Asian and emerging markets with export-oriented economies. The economic crisis has almost completely swept away the model that once helped to create economic miracles.
Without strong foreign demand, the only way to revive the economy is by relying on domestic demand. Businesses are struggling to stay afloat and hope that the government will help them by offering work on public projects.
But these are only temporary measures, so it is unrealistic to expect that businesses will make any major investments. Many Taiwanese are on the way to losing their jobs. The DGBAS classifies almost 10 percent of the population as “poor” and has said that the average yearly income is dropping by NT$56,000 per year.
With the economic outlook looking bleak and deflationary pressure on the rise, the government can’t expect consumers to start spending again. To boost domestic demand, we need the government to take action, but the results will depend on the measures.
A special budget recently passed by the Cabinet for increasing domestic demand and spending on public works is unimpressive. None of the proposed projects seem linked to President Ma Ying-jeou’s (馬英九) policies.
For example, the plan proposed by the government to redraw Taiwan’s administrative map to create three metropolitan areas and 15 counties lacks adequate urban planning. There has long been a large gap between urban and rural areas and problems of equality between the north and south, but none of the government’s plans include measures to rectify this.
The plans also lack insight into how to improve competitiveness through policies directed at industries, education and infrastructure.
The plans should be more creative. For example, a few years ago there were plans to turn Puli (埔里), Nantou County, and Kuantzuling (關子嶺), Tainan County, into tourist areas targeting Japanese visitors interested in long-stay holidays. This plan could have contributed to tourism revenue and would have been a great way of marketing Taiwan, yet it was tossed aside by the government. The fact that the government ignored the plan reflects incompetence.
The government’s inadequate efforts to boost the economy indicate that they are either ignoring the seriousness of the economic downturn or have no idea how to run a country.
China, on the other hand, has actively worked to bolster its economy. Apart from implementing a stimulus package worth 4 trillion yuan (US$585 billion), or approximately 15 percent of GDP, the Chinese government will implement a second stimulus package soon and it is looking into using its foreign reserves to increase domestic demand.
The amount of money China has spent in reviving its economy and the resoluteness it has shown will work in its favor.
The US has also recently announced a stimulus package worth approximately 7 percent of the country’s GDP, and while the government will have to issue debt to implement the plan, it is following through in the hope of improving the economy.
Taiwan’s economic downturn has been described by many as dire, yet the stimulus package released by the government, including the consumer voucher scheme, is worth only 2.77 percent of GDP. Taiwan might not be able to afford to be too conservative in the face of the economic crisis.
Jeff Wu is a doctoral candidate in economics.
TRANSLATED BY DREW CAMERON
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