Long lines at department stores in Taipei’s bustling downtown area around Mother’s Day used to be a good way to verify soaring retail growth, but this year — regardless of the deep discounts being offered by cash-strapped shops — trade is much slower.
Empty shopping malls mean that Mother’s Day this year could be the toughest season that retailers have seen since the 2008-2009 financial meltdown, with consumers tightening their belts amid escalating consumer prices and stagnating wages.
Some people may say that a 9 percent electricity rate hike, or an additional NT$24 per month on the average household bill this summer, alongside the cancelation of fuel subsidies, will not significantly impact average households. However, as prices for food, transportation and other bare essentials are also increased, consumers are beginning to feel the domino effect of higher fuel and electricity charges.
In addition, dismal projections for consumer prices further weakens the willingness to spend. A forecast by the Directorate-General of Budget, Accounting and Statistics (DGBAS) has shown that inflation is set to increase by 1.94 percent this year, but any natural disasters — such as typhoons that usually hit in the summer and fall — will push prices even higher.
Taiwan’s meager economic growth this year also adds to people’s suffering, with slower GDP growth potentially leading to payroll declines and a bleak job market. GDP is expected to expand at a slower annual rate of 3.38 percent, rather than 3.85 percent, DGBAS said earlier this year, blaming weak export growth and a private consumption slow-down.
The arrival of stagflation — the coexistence of high inflation and low GDP growth — is likely to further add to the nation’s Misery Index (the result of consumer price increases plus the jobless rate), which was at 5.61 percent last month. (In 2008, the index spiked to 7.67 percent, the highest since the 1981 global oil crisis, which prompted an increase in fuel and electricity prices).
In 2009, during the peak of the global financial crisis, Taiwan’s GDP nosedived to minus 1.81 percent, while consumer prices dipped to minus 0.87 percent. That meant people earned less, but they were under less pressure as the cost of living was also in decline.
More importantly, the government issued consumer vouchers of NT$3,600 per person in November 2008 in a bid to stimulate sluggish private consumption and weak growth. Although the policy only added between 0.3 and 0.5 percentage points to Taiwan’s GDP in 2009, lower than the government had estimated, it was at least an attempt to kick-start economic growth and to improve people’s lives.
Now, with a run-up of state deficit and state-run companies on the verge of imploding, the government is squeezing the public. In addition to hiking fuel and power rates, the government has also rushed to resume a capital gains tax on securities transactions in the name of building a fairer taxation system. The tax proposal, submitted in its final version to the Cabinet recently, has adversely affected the TAIEX.
Obviously, the public’s welfare is not ranked as highly as that of government officials.
Much-needed industrial reforms — an upgrade needed to add value to industries in low-margin manufacturing — has also been put aside. This decision will jeopardize Taiwan’s global economic robustness at a time when its trading competitors are gearing up to strengthen their technological capabilities and broaden their product lineup.