The Directorate-General of Budget, Accounting and Statistics on Friday raised its GDP growth forecast for Taiwan to 2.69 percent, up from 2.6 percent in May. This year, several forecasters have revised upward their economic growth predictions for Taiwan, reflecting that the nation’s 15th business cycle remains in a phase of expansion.
Taiwan’s 14th business cycle began in January 2012, peaked in October 2014 and bottomed out in February 2016, National Development Council research showed.
Beginning in March 2016 — and racking up 30 months so far — the current expansion phase has yet to reach its peak, the council said, despite a slowdown in the global economy, high crude oil prices, the volatility of the Turkish lira and other emerging market currencies, and trade disputes between the US and the rest of the world.
Even so, business indicators released by the council on July 27 showed that after four straight months of stable growth, the business climate monitor for June went from “green” to “yellow-blue,” indicating weakening economic momentum.
Meanwhile, scores for the leading and coincident indicators — used to gauge the nation’s economic outlook over the next six months and the current month’s economic conditions respectively — declined from the previous month, raising concern that the situation might be more than just a short-term phenomenon.
Various local and international disruptions cause each business cycle to have a different duration. To better grasp how the domestic economy is trending and help people keep pace with fluctuations or shocks in the markets, the council on Thursday announced that it would begin to use a modified model of business indicators later this month.
To better predict economic fluctuations, the council’s indicator scheme — launched in 1977 to gauge domestic economic health — has gone through several iterations. The five-color scale — adopted in August 2013 — serves as a convenient way to evaluate economic trends, with “blue” signaling a recession, “green” steady growth and “red” overheating, while “yellow-blue” shows a move from recession to growth and “yellow-red” a move from growth to overheating.
The modified model would still use nine components and a five-color scale to gauge local economic fundamentals, but the indicators’ threshold scores have been adjusted according to a new evaluation standard to better reflect changes in the business climate.
While the current monitoring system showed that seven indicators were “yellow-blue” and eight “green” from April last year to June this year, the modified model would have shown that 14 indicators were “green” and one “yellow-red,” with the index of leading indicators showing four consecutive months of an upward trend, instead of seven consecutive months of a downward trend.
Periodically, the council should tweak the valuation metrics of its business climate monitor, or add new variables and remove old ones, to better reflect what is happening in the nation’s economy and to indicate its health, while helping forecast trends.
However, it would be a mistake for the government to interfere with the accounting so that the economic data look better than they are. While the indicators’ accuracy is important, enhancing transparency and predictability in devising economic metrics is also crucial for the government and the public.
Most importantly, the government needs to return to basics to improve the nation’s economic fundamentals, rather than concentrating too much on the indicators.
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