Sun, Nov 29, 2009 page8

• EDITORIAL: A recovery with concerns attached

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  The economy is finally showing signs of shifting from a slowdown to steady growth, with the Council for Economic Planning and Development’s economic monitoring indicators flashing a “green light” signal last month for the first time since May last year.

  Until then, the economy had flashed 10 blue-light signals (recession) and seven yellow-blue light signals (economic slowdown) over 17 months amid the global financial crisis.

  On Friday, National Central University’s consumer confidence index also showed that public sentiment reached a 19-month high this month, with households growing more optimistic about their financial prospects despite remaining wary of rising commodity prices.

  The latest economic figures were just part of a slew of positive economic data released last week that suggests the nation has left behind its worst recession in decades.

  Last month’s export orders, for instance, grew for the first time in 13 months, while industrial production recorded the best performance since April last year. The economy also shrank at the slowest pace in a year in the third quarter — 1.29 percent year-on-year — and the government predicted the economy would grow 6.89 percent in the fourth quarter, higher than its previous forecast of 5.49 percent growth.

  With improving external demand, especially from China and other emerging markets, the government is now forecasting that the economy will contract 2.53 percent year-on-year this year, up from its forecast in August of a 4.04 percent contraction, and has revised its forecast for next year to an increase of 4.39 percent, up from a forecast of 3.92 percent growth.

  Still, the recovery is not firmly in place. A closer look at the latest report shows that growth in the index of leading indicators — a gauge of future economic development — fell by 0.5 percentage points month-on-month last month after increases of 1.5 and 0.8 percentage points in the previous two months.

  Another concern over the strength of the recovery is that the annualized six-month moving average of leading indicators decreased by 0.6 percentage points month-on-month last month — the first decline in eight months, according to the report.

  In addition, the jobless rate has fallen for two consecutive months after hitting a record high of 6.13 percent in August. Declines in wages in the nation’s industry and services sectors in particular are casting doubt on the substance of this recovery.

  The figures show that average nominal wages dropped 6.23 percent in the first nine months to NT$43,059. This decline was the largest in 30 years and produced the lowest nominal wage since 2004.

  Now, with the news that Dubai World, a state-owned company burdened by US$59 billion in liabilities, has proposed a delay in debt repayments, an extension of the global credit crisis remains on the cards, albeit on a lesser scale.

  The Financial Supervisory Commission said on Friday that Taiwan’s financial institutions have a combined NT$6.43 billion exposed to debt default by Dubai World.

  Although the size of this exposure is small compared with a total of NT$40 billion of exposure to investments linked to Lehman Brothers Holdings Inc a year ago, it reminds us that talk of recovery should be couched in cautious terms, especially given external uncertainties.
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