Had it not been for the poor showing in the recent GDP growth forecast from the Directorate-General of Budget, Accounting and Statistics’ (DGBAS), few would be aware that the nation’s economy is sinking deeper into recession, dragged down by declining exports.
Had it not been for the surprise shuttering of Chiu Su Jen Yoga Center’s outlets in Taipei last week, most of us would not know that the storefront vacancy rate has been on the rise in the city’s major shopping districts and several stores in prime areas have quietly closed down amid declining businesses.
The DGBAS on Friday said Taiwan’s economy declined for a third straight quarter in the first quarter of the year, down 0.84 percent on a yearly basis and worse than its previous estimate of the 0.64 percent decline. It said lackluster exports, down by 3.93 percent from a year ago, have aggravated the nation’s economic decline, despite a 1.84 percent growth in private consumption in the first quarter.
The report also indicated that private investment was lower than expected in the first quarter, as the construction industry is slumping and electronics firms have reduced inventory, leading to a 2.48 percent annual decline in gross capital formation.
We have to wait until after president-elect Tsai Ing-wen (蔡英文) takes office on May 20 to find out how the Democratic Progressive Party government is going to deal with this economic woe. She has already proposed developing five “innovative industries” to find niches and create new opportunities for the nation’s economy.
Meanwhile, the central bank might continue cutting its policy rates to help weaken the New Taiwan dollar and increase the competitiveness of Taiwanese exporters, if the widening domestic output gap and the deterioration in external demand conditions remain unchanged in the coming months.
The problem is that real GDP growth not only has to be supported by trade surpluses and private consumption, but also backed by more sustainable growth in public spending and private investment.
However, the nation’s challenging fiscal situation and increasingly rigid budget allocations are likely to restrict the scope of the DPP administration’s pledges for big spending on housing and infrastructure, while a slowdown in China is expected to hit Taiwan hard in terms of consumption and investment given the close trade relationship between the two nations.
Despite the steady policy easing by the central bank, there are indications that it has not benefited the real economy, prompting many economists to think that the bank will need to deliver many more easing measures to let lower borrowing costs trickle down to sectors that are in need of funds.
On the other hand, a dovish US Federal Reserve, along with continuing accommodative monetary policies in other developed economies, might have deferred the threat of imminent capital flight, but the issue remains unsolved for emerging-market currencies and it may still have the chance to cause the NT dollar to strengthen and hence hamper Taiwan’s technology sector exports.
Premier-designate Lin Chuan (林全) has finalized his Cabinet and it is increasingly likely that the new government will adopt new measures to stimulate growth. Many pundits have said that the new government will need better strategies to revitalize the economy, but no one knows how long it will take for new policies to deliver on the structural transformation of the economy.
One thing that is certain is that confident citizens remain key to the economy as psychology matters a great deal. If a government is working hard to build trust and educate the public about economic options, it will inspire the public’s confidence in the government — and at some point that psychological dynamics can spontaneously transform challenges into opportunities.
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