The New Year’s Eve fireworks display at Taipei 101 was a sight to behold. It is a pity, then, that saying goodbye to 2012 was not the same as bidding farewell to the economic stagnation that characterized much of that year.
If things do not change, it is possible that the new year will bring with it a double-dip recession, although it is too early to say what exactly will characterize the year ahead.
First, the global economic outlook is far from rosy. The austerity drive throughout the EU means that economic recovery is unlikely in Europe. The IMF predicts that six of the eight countries whose economies are most likely to contract this year are in Europe.
The US has managed to step back from its “fiscal cliff” for the time being, but in two short months steep automatic cuts to US federal government spending are expected to kick in and there is uncertainty as to what the US Congress will do about this.
Even though it is anticipated that the US debt ceiling will be raised, there remains a risk that the country will have its credit rating downgraded a second time. This would mean an increase in taxes, which would be a drag on economic recovery there.
Nevertheless, that the US owns a considerable percentage of the world’s oil shale reserves means it can rely on a relatively inexpensive energy resource and as long as the US’ financial system stabilizes, then it should remain competitive over the long term.
In the BRIC countries (Brazil, Russia, India and China), we see that China’s industrial structure continues to adjust and after its recent transfer of political power, the country’s new leadership is looking for stability and hoping for sustained, steady economic growth.
Russia is staring at a possible financial crisis ahead, one from which it will be difficult to extract itself.
India’s economic and trade policy has gone awry, and economic growth has slumped with some predicting that India’s economic growth will be eclipsed by Indonesia’s forecast 6 percent growth in GDP.
Brazil is facing increases in workers’ wages and the cost of labor, as well as the growing pains of economic restructuring.
Economic growth will be the preserve of small African countries, but as average incomes are so low there, the impact of this growth is unlikely to be felt internationally.
Both the US and Japan are printing more money as part of quantitative easing monetary policies, which will have an effect on international financial markets due to the subsequent devaluation of the currencies of these two major countries. This will not only have repercussions on international trade, it could also lead to destabilizing of international speculative hot money flows.
In the long term, global inflationary pressure is set to increase, and the status of the US dollar will weaken and perhaps even collapse as the de facto international currency. After the international financial markets have adjusted to this tectonic economic shift, the world will look somewhat different.
As far as Taiwan’s economy is concerned, this year will see increases in oil and electricity prices, the implementation of a capital gains tax on securities transactions, the second-generation National Health Insurance reform, pension reform and higher charges, all of which will add to the financial burdens borne by the nation’s households, thereby suppressing effective demand. Rising government debt and liabilities are further concerns.