Mon, Nov 02, 2015 page8

• EDITORIAL: GDP numbers are a wake-up call

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  The economy started out strong in the first quarter, but quickly lost its momentum, slowing down sooner than expected. The government’s hasty introduction of several short-term stimulus measures after GDP growth fell to a six-year low last quarter sent a clear message: The slowdown is much worse than anticipated.

  The latest GDP data underlined the adverse impact of the global downturn and its implications for the nation’s export-driven economy. Unfortunately, it took Taiwanese too long to realize the vulnerability of the information technology and communication hardware manufacturing sectors, as well as the danger posed by local suppliers’ heavy reliance on Apple Inc’s cyclical business model.

  The Directorate-General of Budget, Accounting and Statistics estimates showed that GDP shrank 1.01 percent from a year earlier in the July-to-September quarter, due to weakness in private consumption, private investment, foreign trade and government investment. The slump is far worse than the GDP data from South Korea and Singapore, whose economies grew by 2.6 percent and 1.4 percent respectively in the same quarter.

  While private consumption has been relatively resilient compared with other GDP components, its 0.89 percent growth last quarter was not enough to offset the significant weakness in other items, such as the 2.85 percent fall in exports and the 1.25 percent contraction in capital formation.

  Still, the data signal that there might be light at the end of the tunnel. Seasonally adjusted quarterly rates as well as seasonally adjusted annual rates showed that the economy expanded slightly in the past quarter — growing by 0.05 percent and 0.21 percent respectively — which made some economists think that the worst might be over.

  However, the economic landscape ahead does not look bright. Some economists think that the economy has already bottomed out, but recovery in developed nations has been modest at best, while emerging markets have continued to struggle with low commodity prices.

  Also, the economy cannot continue to rely on demand from China, which has shown signs of a slowdown in the manufacturing sector, while Chinese electronics suppliers have become competitors of Taiwanese firms. Moreover, being the nation’s largest trading partner and financial debtor in terms of lending by Taiwanese banks to China, a possible hard landing in China would inevitably hit Taiwan.

  The government has pinned its hopes on the stimulus plan, which aims to spend NT$4.08 billion (US$124.4 million) on subsidies to boost consumption and add 0.1 percentage points to GDP.

  However, the goals of encouraging consumption and boosting growth would be out of reach without cooperation from the private sector and support from monetary authorities.

  At a time when foreign demand is weak, exporters would continue to struggle, while their pessimistic outlook on external demand might prevent them from investing. Therefore, the central bank should roll out additional monetary easing and the Cabinet must pursue countercyclical fiscal policies in a bolder fashion, which would encourage companies to increase investments, raise wages and create more jobs.

  It is also necessary to modernize old regulations, increase government efficiency and improve infrastructure to attract investment from local and foreign corporations, while implementing new policies to help start-ups.

  It is difficult to estimate the effectiveness of the stimulus package, but what people can be certain of is that the latest GDP figure is a wake-up call, demanding a boost of the economy’s competitiveness and reform of the nation’s industries.
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