Once again, the Directorate-General of Budget, Accounting and Statistics (DGBAS) has revised upward its economic growth forecast for this year to the highest level in 21 years, after the economy showed a stronger-than-expected growth of 9.8 percent in the third quarter.
On Thursday, the DGBAS said it now expected the economy to expand 9.98 percent for the full year, which was higher than the 8.24 percent growth it forecast in August.
The new forecast represents the highest level since 1989, when the economy expanded 10.28 percent. It also contrasts with a contraction of 1.93 percent in GDP last year, a reminder that Taiwan has emerged from its most serious economic slump in recent years.
This year’s high growth, if achievable, is certainly good news, but the key concern is whether the economy can sustain this high rate of growth next year. Indeed, the economy’s growth momentum has slowed sequentially in the third quarter amid flat exports.
Moreover, the DGBAS predicts that Taiwan’s GDP, based on a seasonally adjusted quarterly rate (SAQR), will contract by 0.53 percent in the fourth quarter, after growing 0.02 percent in the third quarter, 0.48 percent in the second quarter and 4.08 percent in the first quarter.
This slowing momentum is also reflected in export orders. The Ministry of Economic Affairs’ latest data release on Friday showed that export orders declined 0.93 percent last month from September, while the yearly growth of 12.26 percent for the month marked the slowest pace in one year.
Clearly, a major uncertainty to Taiwan’s export--reliant economy next year is a growing sign of weakening growth next year in other parts of the world. As such, the DGBAS also revised down its GDP forecast for next year to 4.51 percent, down from its previous prediction of 4.64 percent in August.
The strength of the US economy now hinges on the effectiveness of the US Federal Reserve’s second wave of quantitative easing measures, but there are worries that the US’ stimulus measures may not revive its economy as expected. Japan and some European countries are still suffering from the weight of their subdued growth and debt problems, while China is increasing its efforts to battle a surprising jump in inflation and appreciation of the yuan.
The second uncertainty for the economy is whether most Taiwanese can share in this fruit of economic prosperity rather than only a few people. Right now, a still-high unemployment rate, stagnant salaries and a widening household income gap remain hot issues in this country. More jobs created at home and reforms of the tax system are needed to solve these problems.
The third uncertainty is whether the central bank will continue its interest-rate hike cycle. Raising interest rates is a move that can help pre-empt the recurrence of negative “real” interest rates — when nominal interest rates are lower than the inflation rate — but at the same time it will boost the value of the NT dollar and risk attracting more hot money into the country.
Finally, there is the issue of rising property prices. One wonders how much more effort the government intends to exert to help cool the red-hot housing market before the problem develops into a bubble. This demands that the government play a balancing act by pushing speculators out of the picture without dampening market sentiment and creating even more uncertainty about the overall economy.
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