Last week’s GDP data are a wake-up call to the government in terms of the economic impact of the slowing global recovery and the need to improve its ability to make growth forecasts. However, the government should understand that there can be no better way to revitalize the nation’s economy than to ensure people have a high standard of living and decent jobs.
The latest figures from the Directorate-General of Budget, Accounting and Statistics (DGBAS) show that Taiwan’s GDP growth expanded by 1.54 percent year-on-year in the January-to-March quarter, as private investment picked up sufficiently to offset broad-based weaknesses in private consumption, international trade and government investment. The figure surprised many people, including the government itself, because the agency had forecast in February that the economy would grow by 3.26 percent in the first quarter.
For now, the DGBAS is sticking to its full-year growth forecast at 3.59 percent, but this relatively upbeat forecast — compared with estimates made by some foreign institutions — signals that the government either lacks a sense of urgency or is confident in its ability to revive the economy.
Already, the IMF’s Regional Economic Outlook: Asia and Pacific, released last week, shows Taiwan’s economy is likely to expand by 3 percent this year and 2.8 percent next year, down from the forecasts of 3.9 percent and 3.6 percent respectively which it made in October last year. In addition, Credit Suisse AG now expects Taiwan’s GDP will increase by 2.7 percent this year, as opposed to its prior estimate of 3.4 percent, while JPMorgan Chase expects growth of 3.3 percent for Taiwan this year, down from its previous estimate of 4.2 percent growth.
There are signs that private investment — which increased by 10.64 percent year-on-year in the first quarter and outpaced the government’s forecast of 5.63 percent — will continue to grow this year, thanks to the recovery in technology companies’ capital expenditure, as well as government initiatives to attract investment from foreign investors.
However, the government needs to consider whether poor private consumption suggests that consumers remain wary about the economic prospects and as a result are spending less and saving more.
That consumers are becoming more frugal is a result of stagnant wages, because real wages have still not returned to their level of 18 years ago. Although the latest job data show the domestic unemployment situation remains stable, the problem of stagnant wages indicates that the jobs being created are mostly poorly paid, while both the government and business sectors are becoming increasingly dependent on part-time and temporary workers, rather than full-time employees, to fill vacancies.
The government’s recent push to set up “free economic pilot zones” shows policymakers’ desire to open up and stimulate economic growth, but this push could result in a mixed bag for businesses and workers. One issue is that if the government were to offer businesses substantial investment benefits and tax incentives without making an effort to create good jobs with decent wages, the pilot zone plan would benefit only businesses and foreign workers. This would mean stagnant salary growth and weak consumer spending would continue.
For Taiwan, a solid economic recovery depends on solid growth in domestic productivity and exports, followed by meaningful improvements in the labor market. The government must make more concrete efforts to revitalize the economy.
One of the most urgent tasks the government faces is to have a productive workforce. While businesses will create most of the jobs, the government must help develop the necessary conditions to ensure those jobs are of sufficient quality.