The government’s latest foreign trade data show that the trade surplus increased more than expected to US$5.24 billion last month from US$3.96 billion in August. The figures amounted to an increase of 49.71 percent from September last year. As a result, the cumulative trade surplus from January through last month amounted to US$38.56 billion, increasing by about 46 percent from a year earlier, according to Ministry of Finance figures released last week.
A trade surplus happens when the total worth of a nation’s exports are greater than that of its imports. Normally, a large trade surplus helps people maintain confidence in the economy. Although it sometimes may add appreciation pressure on the local currency, an expanding surplus bodes well for the economy in terms of GDP growth.
However, this is not the case when it comes to Taiwan’s performance this year. A closer look at the latest data reveals that the sizeable trade surplus happened because the decline in imports was much greater than the decline in exports.
For example, exports last month shrank by 14.6 percent to US$22.54 billion; the eighth consecutive month of annual contraction. However, imports dropped even faster, by 24.4 percent year-on-year, to US$17.3 billion, the sharpest yearly decline since 2009. Many people had expected an improvement in external demand, driven by a rise in the demand for electronics ahead of the holiday season, but that did not happen.
Granted, Typhoon Dujuan at the end of last month reduced the number of working days, and temporarily blocked sea and air transportation, contributing to the trade weakness for the month, but the much weaker import figures still invite concerns that the momentum of domestic demand is unlikely to persist to the end of the year.
In particular, the fall in the imports of consumer goods — which failed to stay in positive territory and contracted by an annual rate of 11.6 percent last month — indicate a slowdown in private consumption.
With weaker-than-expected trade numbers over the past several months, the economy might have plunged into a technical recession — two consecutive quarters of contraction in GDP — last quarter . If exports fail to rebound this quarter, the outlook for a GDP recovery would be dampened, and the challenge facing the government would not only be keeping GDP growth above 1 percent this year, but also deciding whether it would be possible to find an alternative growth driver next year.
Private consumption is a major force in economic growth. Last week, the Cabinet approved a plan to offer tax breaks of NT$50,000 (US$1,522) for automobile owners who trade in their old vehicles for new ones. It is a model that has been successful in Singapore and South Korea and the government hopes the proposal — which still needs legislature approval — would see used cars being sent to developing nations, while boosting new car sales by about 10,000 units a year, as well as creating a value of NT$10 billion for businesses and 1,500 jobs in the domestic automobile supply chain.
The general consensus is that, aside from monetary easing, an economic stimulus package and expansionary fiscal policies are needed to increase investment in public infrastructure projects and boost domestic consumption. The measures could prevent a short-term economic slowdown from devolving into a long-term recession.
Rather than standing idly by before the Jan. 16 presidential and legislative elections, the government needs to take a more proactive approach to strengthening consumer confidence, increasing private spending and making room for an early recovery of the economy.
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