Taiwan may have found the light at the end of the economic tunnel with the better-than-expected foreign trade data which were released last week, but the nation cannot afford to get too comfortable about the figures because they come from a low comparison base and there are still headwinds ahead in the global economy.
Last week, the Ministry of Finance reported that the nation’s exports last month unexpectedly rose 10.4 percent from a year earlier and 10 percent from the previous month to US$27.17 billion, hitting a 14-month high and ending six consecutive months of decline. Imports also fared better last month, increasing 1.3 percent year-on-year and 8 percent month-on-month to US$23.09 billion.
According to the ministry’s report, the turnaround in last month’s exports came as seven of the nation’s 10 major export sectors posted a year-on-year increase in shipments, led by a 138.5 percent increase in mineral shipments, such as gasoline and diesel.
A closer look at the data revealed a 20.6 percent annual shipment increase in optical products (including panels used in flat-screen TVs) and a 10.5 percent rise in electronic products (such as semiconductors and other electronic components). However, their strong rebound, as economists said, could be driven by a temporary surge in electronic shipments for inventory replenishment and was also a likely result of clients’ inventory build-up to meet consumer demand ahead of China’s Golden Week holiday earlier this month. Without these short-term orders, it is questionable whether the growth momentum is sustainable.
Moreover, one needs to keep in mind that the surge in mineral shipments last month was the result of a relatively low comparison base from the same month last year, when factories in the Formosa Plastics Group’s petrochemical complex in Yunlin County were ordered to close for safety inspections after a series of industrial incidents, and which caused a plunge in petrochemical shipments.
What is also worth noting is that exports of information and communications products showed a contraction of 20.1 percent year-on-year last month, following a decline of 23.9 percent in August. This sector, led by Acer Inc’s PCs and HTC Corp’s smartphones, has continued to present the largest contraction among the 10 major export categories since May, which should keep businesses on alert about the falling competitiveness of Taiwan-made products in this sector.
The impressive export figures for last month cannot hide the fact that Taiwan is still in a difficult economic situation amid the persistent uncertainty over the eurozone debt crisis and slowing growth in China and the US. For the third quarter as a whole, for instance, exports contracted 2.3 percent year-on-year, and although third-quarter exports showed an improvement from the 5.4 percent contraction in the second quarter, it should not be forgotten that Taiwan’s total exports in the first nine months of the year were still 3.9 percent less than the year before.
Meanwhile, overall import growth remained weak despite the mild improvement seen last month. Part of the weakness was because imports of capital equipment fell 0.2 percent last month to US$2.82 billion from a year ago and declined 10.6 percent annually to US$27.17 billion in the first nine months. This certainly poses a source of serious concern for the nation’s future economic recovery because lower imports of capital equipment is indicative of weak domestic investment and reflects a conservative outlook among domestic manufacturers.
After the release of the latest figures, government officials predicted a better fourth quarter on seasonal demand. However, the biggest question is whether the signals of improvement indicate the beginning of economic recovery or just a temporary phenomenon. We need more economic data to gauge whether the economy hit a trough in the third quarter. Until then, the government should not become complacent.