There has been a flurry of government data lately showing that the nation’s growth cycle might be bottoming out in the short term. Among them, the overall composite score of the business monitoring system moved up one point to 15 last month from September, the index of leading indicators — which is used to gauge the economic outlook for the near future — last month registered the smallest decrease in 11 months at 0.09 percent, while the index of coincident indicators — which reflects monthly economic conditions — marked the lowest monthly decline since November last year at 0.07 percent.
Export orders also shrank at a less-than-expected annual rate of 5.3 percent last month, compared with the 5.82 percent average contraction forecast in a Reuters poll of 14 analysts, while growing 2.9 percent from a month earlier. The improvement was primarily supported by the performance of the information, communications and technology (ICT) industry, with such orders increasing 11 percent year-on-year and 5.7 percent month-on-month, confirming that the electronics sector is entering a seasonal upturn on the back of the launches of new smartphones, wearable devices and servers.
Meanwhile, domestic commercial sales contracted 2.66 percent year-on-year last month, a smaller decrease than the 4.5 percent annual decline in September, although wholesale trade continued to drag, down 4.4 percent last month on a yearly basis. The government last week also revised upward its GDP growth forecast for last quarter to an annual contraction of 0.63 percent, citing a widening trade surplus in the quarter. The government now expects full-year GDP to grow 1.06 percent this year, which is better than forecasts by several local and foreign economic research institutes.
However, it is too early to say that the economy is on a solid footing heading into the holiday shopping season. Other economic data released last week showed that industrial production dropped 6.15 percent year-on-year last month, worse than the consensus forecast of a 5.4 percent annual fall and an indication that the weakness in manufacturing activities is spreading into this quarter from last quarter.
Making the situation worse, government officials recently said the double-digit percentage point decline in actual customs-cleared exports would likely continue into this month following last month’s 11 percent drop. As the contraction in net exports was the main drag on GDP growth in the past two quarters, the officials’ warning is negative for a more visible recovery in the economy toward the end of the year.
Furthermore, the latest economic data have generated growing concern about the mismatch between domestic production and overseas shipments that Taiwan is facing, as structural constraints look to carry more influence on the nation’s economic landscape than that of cyclical demand linked to global macroeconomic conditions.
That is, economic challenges are likely to remain for a long time, as long as overseas production as a proportion of export orders continues to rise and ongoing inventory overhangs continue to send ripples through the local electronics industry. However, if Chinese supply chains become an increasing threat to Taiwanese manufacturers, they could eventually crowd out Taiwan’s exports to China and other world markets.
For next year, the government predicted the economy would grow 2.32 percent, compared with a 2.7 percent forecast made in August. However, the risk of a downward revision remains in light of external uncertainties amid China’s slowdown and the US Federal Reserve’s expected tightening, coupled with Taiwan’s long-term and structural problems. This only adds to market speculations about further monetary action by the central bank next month.
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