Taiwan’s economy might be recovering, but uncertainties lie ahead as the global economy experienced a shaky start this year.
Certainly, growth is picking up in the US and that should continue to lend support to Taiwan’s export-reliant economy. However, do not expect a fast rebound in Taiwan’s economy, as economists have warned of an uneven global recovery since the final quarter of last year, and lower demand from oil and commodity-dependent nations is likely to have a negative impact on the nation.
In theory, plummeting global oil prices should have a big impact on the nation’s inflation and household consumption; however, the boosts to real production activity that government officials are hoping for have yet to materialize, as is evidenced by a wealth of economic data released recently. As the nation is almost entirely dependent on imports for its energy supply, a fall in global oil prices certainly means that this year the economy will be on a much more solid footing than last year.
However, concerns are lingering over China’s prospects for growth this year after its leadership last year touted the need for the nation to adapt to a “new norm” in the pace of economic growth. With growth in China forecast to be 7.4 percent this year, the slowest since 1990, challenges could continue for Taiwan, given that China is the No. 1 export destination for domestic manufacturers.
Apart from China, recent economic data showed feeble growth in Europe, Japan and Southeast Asia, which is not good news for Taiwan either. The Reserve Bank of India last week unexpectedly lowered its key interest rate to 7.75 percent from 8 percent, the first cut in nearly two years, a sign that with tepid or slowing growth elsewhere in the world, more policymakers might adopt monetary easing against a deflationary spiral amid the price plunges in global crude oil and some major commodities such as copper, or their economies could be at risk of a sharp slowdown.
Adding to growing concerns about the global economy — and what has grabbed most of the headlines over the past few days — was the Swiss central bank’s surprise decision on Thursday to scrap a three-year-old cap on the Swiss franc against the euro.
While it is easy to understand why the Swiss National Bank did not want to continue the program at a time when the euro is continuing to weaken against other currencies and the European Central Bank might adopt more aggressive bond-buying and other quantitative easing measures this week that would weaken the European currency even further, the dramatic move sent a chill through the global financial community, and most importantly, the market is now gripped by an unfamiliar sense of uncertainty.
The biggest problem facing the market is the fear that possible policy changes from central banks might have significant impacts on countries and markets around the world. No one knows how serious currency volatility will be, whether global interest rates are set to stay lower for longer than expected and if major global policymakers are able to handle looming financial worries again. The real concern is that there is no clear indication of when such fears will stop affecting market sentiment.
For those confident that Taiwan’s economy will keep growing this year, pinning their hopes on the US economy looks like the best bet. However, the recent dramatic moves by the Indian and Swiss central banks are reminders of the never-ending market volatility ahead. The bottom line is that one should always expect the unexpected.
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