The government last week released statistics showing unexpectedly low export growth for last month and a contracting trade surplus for the first six months through June, which prompted some critics to say Taiwan's export sector is losing steam and that the nation's economic competitiveness is declining.
On Thursday, the Ministry of Finance reported that export growth slowed to a surprisingly low 3.1 percent to US$14.88 billion last month, as lingering high oil and raw materials prices undercut global demand for the nation's goods. The ministry expected the weak trend in exports to continue and predicted export growth would be around 5 percent in the second half and at 6.7 percent for the full year.
Taiwan's export growth has been slowing since late last year due to excess inventories in the tech sector, rising US interest rates, China's measures to cool its economy and a strong local currency. Against this backdrop, the nation posted a trade surplus of US$420 million for the first six months of the year, marking a sharp decline of 89.1 percent from the year-earlier level, according to the ministry's data.
Both economists and industry leaders have expected the tech sector to see a recovery in the second half of the year, but the Bureau of Foreign Trade expects the trade surplus to slide almost 30 percent to an estimated US$4.25 billion this year from US$6.12 billion last year, after the government revised downward its projected economic growth rate for the year to 3.63 percent from the previous forecast of 4.21 percent.
Critics asserted that the nation is losing its export edge, saying that Taiwan has reported a more than US$10 billion trade surplus annually in 12 years out of the last two decades. They argued that the trends in the volume and value of international trade are undergoing a dramatic change, and the government shouldn't sit idly by and watch the situation worsen.
Indeed, we could fill a small library with studies about how narrowing export growth was caused by higher US interest rates and surging crude oil prices. We could carry on all day about this topic and discussions of industrial "hollowing-out" due to the relocation of high-tech firms to China, companies' sticking to contract manufacturing rather than engaging more in value-added product innovations, or the persistent political infighting that endangers the domestic business environment.
But the reality is that the room for the government to spur further export growth is rather limited. South Korea, Singapore and other export-oriented Asian countries are also facing the same situation amid the softening global industrial cycle and Beijing's effort to rein in rapid economic growth. But prospects for growth in domestic consumption and the services sector look much more promising.
People in Taiwan used to judge the nation's "competitiveness" by looking at the export sector alone. Goods shipped overseas are tangible, visible items such as notebook computers, LCD panels and other electronics. But intangible and invisible services have gained increased weight on the GDP, and a poll by the Taiwan Institute of Economic Research last month suggested that service providers were more positive than manufacturers about the economy, thanks to the brisk domestic real-estate market and a vigorous job market.
Therefore, despite slowing export growth, Taiwan can still maintain its competitiveness by acting to boost development in domestic consumption and investment, which the Academia Sinica has estimated will expand by 3.26 percent and 17.47 percent, respectively, this year from a year earlier.
The government's "Ten Major Infrastructure Products" and other economic stimulus packages should continue to buoy activities in the domestic construction and services sector. Yet the litmus test will be whether government is able to make these investments, despite the never-ending political infighting.
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