A few days ago, the Institute of Economics at Academia Sinica announced that it had adjusted the economic growth forecast for this year downward to 1.94 percent, halving the forecast it made six months ago. This news shocked many people.
However, looking back, nothing that major happened over the past half year. In November last year, amid the European debt crisis, the then-Greek prime minister George Papandreou stepped down, declaring that he was unable to solve the national debt problem. However, since then things have not spun further out of control. Shrinking demand in the US and China was expected and there has not been any news to generate overly pessimistic feelings about the economy. Thus, Academia Sinica’s economic growth forecast cut would seem to confirm past widespread worries about the economy and there is no real need to overreact to this news.
Several other research institutes will announce adjustments to their economic growth projections in the near future and they are likely to also be adjusted downward, probably in an attempt to correct the overly optimistic forecasts that were made at the end of last year.
Regardless of how much they are adjusted down, they probably will not drop as much as President Ma Ying-jeou’s (馬英九) approval ratings. It would seem safe to say that in the last half year, Taiwan has woken up from an overly optimistic dream.
Looking at things from a slightly different angle, maybe these forecasts that have now dropped to less than 2 percent, will stop financial and economic officials from concentrating too much on technical issues — like keeping economic growth above 3 or 4 percent — and instead direct their attention to the tasks of economic development and reform that they should be focusing on.
In the past decade, it is obvious how the pace of economic change has quickened. When the 2008 financial crisis first hit, academics and experts issued unprecedented crisis predictions. However, with the help of expansionary policies enacted by government’s around the world, economies returned to normal rather quickly. However, these panic-driven expansionary policies helped plant the seeds for future debt problems for many countries.
While current economic forecasts still do not look good, there is no need to resort to excessive use of short-term stimulus packages. Looking at things in terms of expanding domestic demand, it is possible to see that the government has not been involved in any large public infrastructure projects for a long time now. The need for flood prevention and energy savings are as plain as day — the best financial policy then would be for the government to invest in the necessary infrastructure projects.
There is no need to be too pessimistic, but at the same time we cannot afford to be overly optimistic. We need to carefully evaluate the plans that were raised before, when we were very optimistic.
The extra legislative session being held this week will most likely include discussions on the proposed capital gains tax. It is obvious that a law that promotes the idea of tax justice will not be received well by investors. Many people can be expected to cite the importance of economic growth and demand that the capital gains tax not be imposed so as to avoid making the economic situation even worse. If the government insists on passing the tax in such an atmosphere, it will be amended and changed and will end up as some unsightly mess.