Mon, Feb 04, 2019 - Page 6 News List

EDITORIAL: Long-term GDP measures needed

The US-China trade dispute, as well as softening growth in Europe and Asia, puts an export-reliant economy such as Taiwan’s at risk. A flurry of economic data has shown that growth momentum in the nation could lose steam in the short term.

Fourth-quarter GDP grew 1.76 percent year-on-year, which shocked many after the government’s forecast in November last year predicted 2.02 percent growth. It marked the slowest growth in 10 quarters and forced the Directorate-General of Budget, Accounting and Statistics (DGBAS) to revise its GDP growth forecast for last year downward to 2.6 percent, compared with the 2.66 percent predicted in November.

The DGBAS last week retained a GDP growth forecast of 2.41 percent for this year, but that amount of growth might require the government to boost domestic investment and private spending through infrastructure projects and consumption subsidies. Otherwise, increasing pressure from trade tensions might push the statistics agency to downgrade its growth projection for this year, too.

Several leading indicators have pointed to a downward trend in economic activity: The official manufacturing purchasing managers’ index fell to 47.9 points last month, the third consecutive month of contraction; industrial production fell 1.22 percent year-on-year in December, ending a nine-month streak of consecutive gains; exporst orders fell by 10.5 percent in December, the largest decline in 32 months; and, to everyone’s surprise, the government’s overall business climate monitor turned “blue” in December, the first recession alert since April 2016.

The National Development Council’s business climate monitor registering “blue” — indicating a listless economy — for the first time in 33 months, confirming that the economy is weakening and that the pace of the slowdown is likely to worsen during this quarter. No strong growth driver, such as red-hot smartphone sales, is on the horizon, and players in the global economy remain jittery over trade tensions and global geopolitics.

It could be too early to tell how long this downward trend might last, as a bearish sentiment colors the global economic outlook, but some insight can be drawn from the stock market, which is a window on the economy: The global economy could soon be faced with a silver lining in the cloudy sky. Global equities last month showed a rarely seen, across-the-board gain, led by advances in the Dow Jones Industrial Average (7.17 percent), the NASDAQ (9.74 percent) and the S&P 500 (7.87 percent).

The TAIEX increased 2.11 percent in the month, compared with gains of 8.44 percent in Hong Kong, 3.65 percent in Shanghai, 3.79 percent in Tokyo, 8.03 percent in Seoul and 3.96 percent in Singapore. Frankfurt rose 5.82 percent, London gained 3.58 percent and Paris was up 6.1 percent.

Even so, economic data sparked concern over the mismatch that Taiwan faces between domestic demand and overseas sales, as structural constraints appear to have a greater effect on the nation’s economic landscape than the cyclical demands linked to global macroeconomics.

Taiwan could still register strong growth in exports, but private consumption has fallen to between 2 and 3 percent, while domestic investment has fallen to between 1 and 2 percent. Weakening domestic demand bodes ill for the development of local industries, as well as employment and wage prospects.

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