Many people are probably feeling a bit more upbeat about the economy this summer following the recent slew of positive data.
The GDP data released on Thursday last week indicated that the economy finished the April-to-June quarter in the strongest position of the past six quarters. According to the Directorate-General of Budget, Accounting and Statistics, the economy expanded 3.84 percent year-on-year in the second quarter, higher than the 3.14 percent growth recorded in the first quarter and better than the government’s original estimate of a 2.79 percent increase.
In addition, the index of economic monitoring indicators — a gauge of future development — rose last month for the fifth consecutive month, the National Development Council reported on Monday last week. The last time the index rose for five months in a row was from March to July 2011.
Meanwhile, the official purchasing managers’ index — a snapshot of manufacturing activity — expanded for the 17th straight month last month, signaling that manufacturers still have high expectations for growth over the next six months, while the consumer confidence index rose for the fourth consecutive month to hit a record high level, indicating the public is confident about the nation’s economic fundamentals in terms of stock market performance, household finances, durable goods purchases, consumer prices and job opportunities.
However, a major threat to the nation’s export-reliant economy in the second half of the year are the signs of weakening recovery in other parts of the world, especially in developed nations after the IMF recently reduced its global growth forecast from an increase of 3.7 to 3.4 percent against the rising geopolitical risks in Ukraine and the Middle East.
No wonder the index of leading economic indicators, which is used to check the nation’s short-term economic outlook, declined last month for the fourth consecutive month and several Taiwanese high-tech companies said over the past two weeks that they expected muted growth for this quarter.
Economic and business cycles have always been linked to sudden or substantial changes in global politics and economics, but the fluctuations in such cycles have become more volatile in recent years because the progress of any national economy is very much intertwined with those of other economies, so that sometimes one just cannot tell from economic data and forecasts whether the growth can be sustained or how bad the outlook is for the economy.
As a result, one must be mindful of the risk of a sudden fall in exports if electronic demand turns weak following new product launches as well as the potential reduction in investment, be it from the public sector or the private sector. That is because investment is a key driver of household employment, income and corporate profits, and also because investment is largely driven by the outlook for the global economy and the nation’s export cycle.
If there is one more far-reaching concern about the economy, it is the state of manufacturing industries, which have mostly relocated their major production overseas, meaning the share of domestic value added to their products per unit of output remains relatively low — thus providing limited room for wage and consumer purchase growth going forward.
While the gas pipeline explosions in Greater Kaohsiung will have limited impact on the economy, and GDP for this year might well expand by 3 percent from last year — the best performance in three years — it is still far below the growth rate of about 4 percent from before the global financial crisis in 2008, showing that Taiwan is becoming ever sensitive to exogenous demand shocks.
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