Taiwan’s economy began coming out of its worst recession since 2001 in the second quarter, judging from the latest GDP data released on Thursday, but a weak job market is still raising concerns that feeble private consumption will continue to drag on the economy in coming quarters.
The latest data from the Directorate-General of Budget, Accounting and Statistics (DGBAS) shows that the nation’s economy contracted for the fourth straight quarter in the April-to-June period, but a 7.54 percent decline year-on-year for the quarter represented a clear improvement over a revised 10.13 percent contraction in the January-to-March period.
It is worth noting that the economy grew 20.69 percent in the second quarter from the previous quarter on a seasonally adjusted annualized basis, reversing a 10.16 percent decline in the first quarter and ending four consecutive quarters of decline.
It is welcome news that the economy hit bottom in the first quarter and that the recovery will continue picking up pace, albeit slowly, after Typhoon Morakot devastated areas of southern Taiwan with estimated losses of between NT$19 billion and NT$23 billion (US$579 million and US$700 million).
The DGBAS predicted that Taiwan’s economy overall would contract 4.04 percent for the full year and grow 3.92 percent next year on the back of continuing public investment, stimulus spending and improvements in exports.
Looking closer at the DGBAS report, however, questions must still be asked about the weakness of private consumption and private investment, which will hamper the pace of recovery.
Take private consumption, for example: While the nation may be on its way to bouncing back from the recession, consumers have spent little — and in spite of the government’s consumer voucher program. The question then becomes what to do to boost spending.
The reason for this is worsening unemployment and declining wages. With the unemployment rate still hovering at a record high of 5.94 percent in June, consumers are tending toward caution, while the impact of rising joblessness is also significant. The DGBAS predicted a 0.21 percent rise year-on-year in private consumption this year, which was lower than its May forecast of a 0.74 percent increase, after a decline of 0.69 percent in the first half.
In the past couple of weeks, other economic data have shown that domestic companies are adopting a more positive outlook about the second half, but for those companies aiming to boost the bottom line by slashing prices and inventories and maintaining tight control over personnel and other operating costs in response to Taiwan’s consumption woes, when the downturn ends there will still be a lag as average businesses “wait and see” before resuming investment plans.
So it is not surprising that the DGBAS has predicted that private investment will fall 36.75 percent this year from last year — worse than its May forecast of a yearly contraction of 29.02 percent. In other words, the top issue is whether economic recovery can be sustained as private investors persist in seeing storm clouds on the horizon.
The DGBAS is scheduled to release its July unemployment figure tomorrow. As the local job market has yet to show any substantial signs of positive movement, there is no room for excessive optimism on the state of the economy, which thus far has gained much of its momentum from the government’s stimulation measures rather than private initiative.
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