Economic data issued recently by the competent authorities are creating worries that Taiwan’s economy will go the same way as the weather: gradually cooling down.
First, the Council of Economic Planning and Development’s index of economic monitoring indicators flashed “yellow-blue” in September, while exports, manufacturing sales and business turnover all fell and flashed “blue.” In addition, the stock market index, M1B — a narrow measure of the money in circulation — overall power usage, industrial production and manufacturing climate all deteriorated. Import and export trade figures show that September exports fell by 7 percent compared with the same period last year, imports fell by 0.7 percent and the trade surplus by 42.5 percent.
Early September to mid-December each year is Taiwan’s busiest export season. Economic growth over the first three quarters of last year remained below 0.11 percent, and it was only the export growth beginning in September that boosted growth to 1.32 percent for the year. The export season beginning in September has been anything but busy, and this situation makes one think of the decline in exports in September 1999, which brought with it an industrial disaster and a banking crisis. In terms of export markets, although exports to the EU have increased by 4.5 percent, exports to most of the rest of the world have met with blanket failure, declining by 8.5 percent to the US, 8.4 percent to China, 10.9 percent to Japan and by 9.9 percent to the ASEAN.
According to the Directorate-General of Budget, Accounting and Statistics (DGBAS), economic growth for the third quarter stood at 1.58 percent, far less than expected, bringing average growth for the first three quarters of the year down to 1.9 percent. As the fourth quarter does not look too good, it will be difficult to achieve 2 percent economic growth for the year. A closer analysis reveals that the main reason for this is the lackluster domestic demand in recent years. Economic growth last year was 1.32 percent and real domestic demand only grew by 0.09 percent. At the same time, private consumption grew by 1.47 percent and capital formation dropped by 4.47 percent. Over the first three quarters of this year, domestic demand has grown by 1.19 percent, private consumption by 1.18 percent and capital formation by 2.2 percent, all very low figures.
The 1990s saw growth in private consumption by 7 percent to 8 percent and in private investment by 4 percent to 5 percent, which was necessary to support economic growth of 6 percent to 7 percent. Over the past few years, private consumption has grown by less than 2 percent, with the natural result that the economy has stagnated.
Commodity price changes last month also tell part of the story. The consumer price index (CPI) only increased by 0.84 percent compared with the same period last year, but vegetable prices increased by 26.25 percent, meat products by 4.91 percents, aquatic products by 4.53 percent and dining out by 1.26 percent. In all, the price of 215 items increased, making up 66.8 percent of the DGBAS’ observation value. Of these, general consumer goods such as food, energy, toilet paper, tooth paste and so on increased by 2.43 percent. The wholesale price index (WPI), on the contrary, has dropped by 1.57 percent compared to the period last year. Electronic and optical products dropped by 11.29 percent, while the import price index dropped by 4.09 percent.
The structural changes in the CPI and the WPI shows us that the price of daily necessities are increasing quite substantially although the price index average remains low, making it clear that the prices of products other than daily necessities are dropping. It can thus be inferred that as the cost of daily necessities is increasing, family budgets come under pressure, with the result that the consumption of other products is going down, causing their prices to drop. This makes it clear that the stagnated private consumption over the past few years is connected to the level of commodity prices.
Current government policy, such as increases in the National Health Insurance premium and oil and energy prices, is aggravating the situation and putting even more pressure on domestic demand. If we also consider the falling average real monthly incomes and the increasingly imbalanced income distribution, it is easy to see that the price increases will affect different income groups differently and generally have a greater impact on low-income households than on high-income households. If in the long run, everyone refrains from consumption and starts holding on to their money, Taiwan’s economy will end up in the same situation that Japan was in during its “lost decade.”
Exports are declining and domestic demand is anemic. In the short term, it will be difficult to improve Taiwan’s economy, and the public will have to tighten their belts further.
Norman Yin is a professor of financial studies at National Chengchi University.
Translated by Perry Svensson