The Council for Economic Planning and Development’s economic monitoring indicators released on Friday flashed a “green” signal last month, bringing an end to the “yellow-blue” signal that had reigned for nine straight months. This suggests the nation’s economy is finally showing signs of shifting from a slowdown to steady growth. It is also the first green signal since July 2011, thanks to improvements in four of the nine components that make up the indicators: customs-cleared exports, industrial production, imports of machinery and electrical equipment, and manufacturing sales.
The latest change in the signal has caught many people by surprise, because over the past 22 months the economy had flashed 10 “blue” signals, meaning the economy is sluggish, and 12 yellow-blue signals, indicating the economy is in a transitional stage between slowdown and stable growth, according to the council’s data.
Yes, the green signal is unexpected because it came among recent economic data that suggested mixed predictions for the economy. Last month’s exports, for instance, grew 8.6 percent from a year earlier, but export orders continued a losing streak, contracting for the fifth consecutive month with an annual decline rate of 3.5 percent. Industrial production also weakened for the fifth straight month last month, falling 0.43 percent year-on-year.
That does not mean we can relax, because no one can be sure if the positive data for last month are an overnight wonder or signs of the beginning of steady improvement. One should still remember that the council in January reported a green signal, but had to revise the signal downward to yellow-blue the following month because of corrections to some of its earlier individual component estimates.
Another reason to not be too comfortable with last month’s data is because the score of monitoring indicators was 23 points last month, barely passing the minimum score for a green signal, which is triggered when indicators score between 23 and 31 points. Moreover, last month’s data came from a low comparison base and there are still headwinds in the global economy. Growth is slowing in China, which is Taiwan’s biggest export market and saw its exports decline 3.1 percent year-on-year last month and manufacturing activity contract to an 11-month low this month.
We need more evidence to correctly evaluate the economy. While inflation and unemployment in the first half of the year have stabilized compared with a year earlier, the stagnant growth in wages in the nation’s industry and service sectors continues and that has in particular cast doubt on any optimism toward the economy. According to the government’s latest data, Taiwan’s real wages have still not returned to their levels of 16 years ago, with average monthly wages in the first five months of the year falling 2.16 percent from the previous year to NT$48,725, the lowest level since 1997, when the number was NT$49,009.
Overall, the nation struggled in the first half of the year as real GDP grew at an annual rate of 1.37 percent in the first quarter. The figure is likely to improve slightly to 1.98 percent in the second quarter based on the government’s estimate in May. While most forecasters have painted a better economic picture for Taiwan in the second half, the recent economic data still suggest that global demand remains soft and the recovery is not firmly in place.