Mon, May 01, 2017 - Page 6 News List

EDITORIAL: GDP grows, demand stalls

The nation’s economy started out moderately strong in the first quarter of the year, with GDP increasing 2.56 percent year-on-year. While the number is lower than the peak of 2.88 percent growth registered in the final quarter of last year, it is higher than the average of 2.49 percent seen in the second half of last year, according to a preliminary estimate released by the Directorate-General of Budget, Accounting and Statistics (DGBAS) on Friday.

In seasonally adjusted terms, the latest data also suggest the economy is on course for a modest but solid recovery, with the economy expanding 0.72 percent quarterly and 2.93 percent annually in the past quarter, better than the 0.45 percent and 1.82 percent seen in the previous quarter.

External demand and domestic investment remained important drivers of economic growth in the first quarter, thanks to a recovery in the global economy. However, the positive effects have been diluted due to the New Taiwan dollar’s 6 percent appreciation versus the US dollar over the quarter, with annual increases in real exports and imports both coming in lower than February estimates of 6.99 percent and 7.15 percent respectively.

On the positive side, several leading indicators, such as the manufacturing purchasing managers’ index and industrial production index, still point to an upward trend in economic activity over the coming months, implying that the improvement in capital formation could continue amid companies’ demand for machinery and other capital goods, supporting economic growth. However, it is worth noting that the recovery in external demand did not help boost domestic consumption in the first quarter.

The DGBAS data showed that private consumption reported subpar growth of 1.62 percent year-on-year, flat from the previous quarter’s level, but lower than the statistics agency’s February forecast, making some economists think that consumer confidence has continued to languish amid weak employment prospects and concerns about controversial domestic policy changes including pension reform and revision of work week rules.

Private consumption still contributed 0.9 percentage points to GDP growth last quarter, but its strength was overshadowed by weakness in government consumption. Government consumption contracted 4.67 percent year-on-year in the quarter and chipped 0.66 percentage points off the nation’s economic growth, DGBAS data showed.

Should domestic demand be expected to pick up? It is challenging for ordinary people to spend large sums of money in view of muted real wage growth, the negative effects of a rapidly aging society and heavy financial burdens due to housing costs.

While there are signs of improvement in the property market, with both housing prices and transaction volumes picking up in Taipei, it remains unclear whether this will be reflected in a positive wealth effect on consumption.

On the other hand, the anticipated contribution from the government’s NT$880 billion (US$29.1 billion) infrastructure plan is unlikely to be felt until the end of this year at the earliest, as the draft bill regulating the investment has run into opposition in the legislature. The infrastructure bill has been heavily criticized by civic groups and academics alike over assessment criteria, planning and selection of projects, financial impact and feasibility.

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