US-China trade frictions and weakness in domestic demand, including private investment and consumption, are key issues for Taiwan’s economy. The National Development Council’s year-end news conference on Wednesday made it clear that the government would focus on introducing stimulus measures to increase private consumption as part of its efforts to sustain growth momentum, with external demand expected to be negatively affected by lingering trade issues.
The Tourism Bureau’s plan to expand its winter domestic travel subsidy program nationwide is viewed by many as an effective tool to boost domestic tourism, while other stimulus measures by government agencies are almost certainly on their way.
Taiwan’s economy is changing gears amid the trade dispute, which has led to heightened volatility in financial markets and shrinking export orders. The economy performed strongly in the first half of the year and was steady in the second half, but is expected to expand at a slower pace next year, according to economic data released by government agencies and research institutes.
The Directorate-General of Budget, Accounting and Statistics on Nov. 30 forecast that GDP growth would fall from 2.66 percent this year to 2.41 percent next year, while export growth might slide from 6.2 percent this year to 1.96 percent next year. Predictions by several think tanks were more conservative, but there is no indication of an impending recession. Still, Taiwan is facing challenges to maintain its growth momentum and transform the economy.
Amid these challenges, Taiwan needs to move past contradictory policies, make critical but difficult choices, and enhance consistency in policy and policy execution to alleviate the uncertainty of economic transition. Furthermore, while few would oppose progressive ideas like safeguarding labor rights, promoting environmental protection and encouraging corporate social responsibility, the government must take a pragmatic approach to achieving broader acceptance of such ideas, as a prerequisite is an end to low economic growth and long-term wage stagnation. Without solid economic growth and increasing wages, reform policies tend to backfire.
While the export-reliant economy will continue to be affected by external factors next year, problems are also in large part due to restraints on the economic structure, which have been around for years. The structural challenges include difficulties in shifting from manufacturing to the service sector, bringing about urban renewal and rural development, as well as a more liberalized energy industry. Blaming external challenges such as a global economic slowdown or exclusion from regional trade blocs seems to have become a convenient excuse that the government uses to explain low economic growth over the past decade, rather than accepting that growth might have been held back by a failure to adequately develop the domestic market and upgrade local industries.
After more than 50 years of industrialization, Taiwan is undergoing a critical transition in the traditional and high-tech sectors from assembly and contract manufacturing to innovative research and branding. The local service industry also feels compelled to shift toward quality development to gain a competitive edge internationally, improve growth potential and added value, and generate mass employment opportunities and stable production value. These transitions might last for several years and could entail a long period of adjustment with elevated uncertainty.
While it is important for policymakers to provide policy directions and communicate effectively with the public, they also need to show that they are capable of solving problems when businesses run into trouble. Only by doing so could they offset uncertainty in the transition process.
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