Wed, Jan 29, 2014 - Page 8 News List

EDITORIAL: Taiwan needs an economic upgrade

The government has released a series of encouraging economic figures, including stronger-than-expected GDP growth of 2.92 percent for last quarter, which boosted the economic expansion for last year to 2.19 percent. That ended months of guessing about whether the nation would post another weak quarterly GDP figure of under 2 percent.

Consumer confidence has also jumped to a 22-month high this month as five out of six sub-indices rose, with the biggest increase shown in the stock market investment outlook and economic outlook over the next six months, according to a National Central University survey. The consumer prices indicator is the only one that dropped.

The National Development Council said the index of economic monitoring indicators flashed its first “green” light in about half a year last month, indicating that the economy should be on track for a pick-up.

However, these positive notes do not guarantee significant or comfortable growth for the economy this year, as the optimism has primarily been built on expectations about the US and European economies.

The US economy is expected to grow at a faster pace of 2.8 percent this year, from last year’s 1.9 percent, according to an IMF projection released earlier this month. The fund forecast the EU’s economy would grow 1 percent this year, from minus-0.4 percent last year.

There is a blind spot in the government’s economic optimism. Taiwan has steadily been benefiting less from global recoveries as a growing number of US companies mull moving factories back home and reducing outsourced production. China is also increasingly replacing Taiwan as a supplier of manufacturing services and electronic components to the West.

In addition, as the IMF has said, while advanced nations are expected to experience solid expansion in GDP this year, emerging countries should see growth decelerate. During the 2008 to 2009 financial crisis, emerging countries, mainly China, played a key role in providing crucial support to the world’s economy. However, those economies are now poised to undermine the global economic recovery, given their loss of strength and rising deficits. Some analysts are worried that China may suffer a hard landing by reporting GDP growth of under 7 percent or 7.5 percent this year and next.

Even worse, the US Federal Reserve’s stimulus tapering has triggered fears about a recurrence of an economic crisis in emerging markets and the fears are spreading, given the increasing capital outflow from Asia and other emerging markets, which in turn have triggered dramatic currency devaluations.

The recent devaluation of Argentina’s peso has raised fears that it could be the first sign of another recession. The peso plunged about 15 percent last week after Argentina’s central bank suddenly relaxed its currency controls. Some might say such fears are unrealistic, but these worries have made global investors jittery and caused drops in stock markets.

The TAIEX fell 135.74 points, or 1.58 percent, to close at 8,425.7 on Monday, the final trading day before the Lunar New Year holiday that begins tomorrow. Tokyo plunged 2.51 percent to 15,005.73, Seoul fell 1.56 percent to 1,910.34, Hong Kong shares dipped 2.11 percent to 21,976.10 and Chinese shares ended 1.03 percent lower at 2,033.30.

The New Taiwan dollar has depreciated about 7 percent since the beginning of the year, closing at NT$30.451 to the US dollar yesterday.

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