With the global economic slump undercutting consumption at home, domestic sectors across the board are feeling the pinch, the Ministry of Economic Affairs said in a report published on Monday.
The latest government data showed that domestic trade (including the retail, wholesale and restaurant sectors) continued to slow last month, with companies in the retail sector registering the biggest annual drop in sales, at 3.75 percent, followed by the restaurant sector at 2.42 percent and the wholesale sector at 1.57 percent.
Domestic trade totaled NT$1.03 trillion (US$30.9 billion) last month, down 2.17 percent from a year earlier and 0.06 percent from the previous month, the ministry said on its Web site.
“Domestic trade continued to slow during October and hereby continued its trend during 2008,” Tine Olsen, a Sydney-based economist at Moody’s Economy.com, said in a research note yesterday.
Consumer confidence has worsened in recent months, with export growth slowing and the unemployment rate rising, prompting firms and private consumers to tighten their belts.
On Monday, the government also reported that export orders had dropped 5.56 percent from a year earlier to US$30.41 billion last month — the first contraction in nearly seven years — while the unemployment rate rose to 4.37 percent, its highest since September 2004, when it was 4.5 percent.
Ministry tallies show that retail sales declined for the fifth consecutive month since June, which Olsen said reflected the dismal consumer confidence and the failure of the central bank’s rate cuts to give the sector a boost.
“The monetary loosening, which the central bank commenced late September, appears not to have urged Taiwanese consumers to engage in retail therapy. Their spending is likely depressed by a dismal outlook for employment which suffers from lower activity in the export sectors of the island,” she wrote in the note.
Wholesale trade, meanwhile, registered its first year-on-year contraction last month in five years, with revenues of local wholesalers falling 1.57 percent to NT$733.3 billion from a year earlier — the first annual decline since June 2003.
“This illustrates the disarray which the export sector finds itself in,” Olsen said, referring to slumping shipments in recent months to key export destinations such as China and Hong Kong.
Like many other economies, Taiwan’s government is banking on a series of stimulus measures to boost domestic investment and consumer spending.
On Monday, the Cabinet approved two stimulus bills of extra spending and shopping vouchers totalling NT$482.9 billion to prop up the economy, adding to NT$58.3 billion in public infrastructure spending announced in June and a NT$122.6 billion package of stimulus measures introduced in September.
While department stores and retail channels are expected to benefit from the NT$82.9 billion coupon package, analysts said investors should not be overly optimistic about the benefits given the possibility of layoffs ahead of the Lunar New Year holiday.
“Recent history shows that such measures have proven to be largely ineffective as consumers tend to save the handouts, as they will likely use the coupons to purchase goods that they were planning to buy anyway and save their money,” Merrill Lynch analyst Brandon Chen said in a note to his clients on Monday.
“With macro uncertainties ahead, we expect consumers’ conservatism will continue to depress retail spending,” Chen said.
The market consensus is that the voucher plan is at least better than nothing and Merrill Lynch estimated the plan would increase private consumption by 1.1 percent or retail sales by 2.5 percent.
But Olsen said domestic consumption could not fill the void left by slumping exports.
“As the global downturn is forecast to last well into 2009, possibly extending into the first quarter of 2010, the outlook for the Taiwan economy is downbeat,” she said.
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