Fiscal policy is likely to be the most effective tool to drive economic growth and boost support for President Tsai Ing-wen’s (蔡英文) administration, DBS Bank Ltd (星展銀行) said, just days after the market digested the dramatic losses sustained by the Democratic Progressive Party (DPP) in the nine-in-one elections on Nov. 24.
“At the central government level, chances are rising that President Tsai Ing-wen’s government may pursue fiscal measures to shore up the domestic economy in the next one year to regain public support ahead of the presidential election in January 2020,” Ma Tieying (馬鐵英), a Singapore-based economist at DBS, said in a report on Tuesday last week.
In the elections, the number of cities and counties controlled by the ruling DPP fell sharply from 13 to six, while the opposition Chinese Nationalist Party (KMT) won 15, up from six, including three special municipalities: New Taipei City, Taichung and Kaohsiung.
Overall, the KMT received 6.1 million votes, or 48.79 percent, while the DPP received 4.9 million, or 39.16 percent, Central Election Commission tallies showed.
Economic concerns — including the fallout from pension and labor reforms — played into the results, Ma said.
Improving social welfare, creating jobs and raising wages would be the measures that could best restore public confidence, she said.
As GDP growth is generally forecast to slow next year from this year, due to lingering US-China trade tensions and monetary tightening by the US Federal Reserve, boosting policy support is all but justified, Ma said.
On Friday, the Directorate-General of Budget, Accounting and Statistics forecast that GDP growth would fall from 2.66 percent this year to 2.41 percent next year.
Predictions by major think tanks were more conservative, with the Taiwan Institute of Economic Research (台灣經濟研究院) projecting that the economy would grow 2.2 percent next year after an increase of 2.57 percent this year, and the Chung-Hua Institute for Economic Research (中華經濟研究院) estimating growth of 2.18 percent for next year after 2.61 percent this year.
DBS’ growth forecasts were 2.7 percent for this year and 2.2 percent for next year.
With a government debt-to-GDP ratio of 35.7 percent last year — much lower than the legal ceiling of 50 percent set by the Public Debt Act (公共債務法) — there should be adequate room for expansion of fiscal policy, Ma said.
Apart from central government policies, regional development and cross-strait relations are also important issues to watch in the post-election period, DBS said.
Uneven regional development in terms of population growth and increases in personal disposable income were hot topics while people were campaigning for the elections.
Kaohsiung mayor-elect Han Kuo-yu (韓國瑜), the first KMT mayor in the city for more than 20 years, focused on revitalizing the port city through plans such as establishing duty-free zones, promoting thematic tourism, expanding trade ties with provinces in southeastern China and Southeast Asia, and setting up special funds to encourage start-ups.
“How well these policies can be executed remains to be seen, given the long period of economic stagnation and the reality that Kaohsiung’s public debt is the highest in the nation,” Ma said.
While the KMT’s gains in the elections raise expectations of improved cross-strait relations, Ma said that it was too early to anticipate a substantial improvement in the near term, such as a fully fledged recovery in the number of Chinese tourists to Taiwan.
On Friday, Tsai said the government’s cross-strait policy would remain unchanged, urging Beijing not to allow political issues to disrupt city-to-city exchanges.
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