The Directorate-General of Budget, Accounting and Statistics (DGBAS) on Friday revised downward its economic growth forecast for Taiwan for this year and next year. The economy is still growing — albeit more slowly — but the move reflects government concern over the lingering US-China trade row and increasing volatility in the financial markets due to monetary tightening by the US Federal Reserve.
The DGBAS said it expects the economy to expand by 2.66 percent year-on-year this year and 2.41 percent next year, compared with an August forecast of 2.69 percent this year and 2.55 percent next year.
Friday’s growth forecast represented the first downward revision after four consecutive quarters of upward adjustments. Exports, the backbone of economic growth in Taiwan, could slump to 1.96 percent annual growth next year, the lowest in three years and considerably lower than this year’s estimated increase of 6.2 percent. Meanwhile, private consumption and investment have shown signs of softening this year, according to the DGBAS.
The weakening economic momentum has been reflected in the past few months’ data. In October, the government’s business climate monitor flashed “yellow-blue” — an indication that the economy is changing gears — for a second consecutive month.
The official manufacturing purchasing managers’ index for October registered the slowest pace of expansion since May 2016 as export orders rose 5.1 percent from a year earlier to a new high of US$48.99 billion, but the Ministry of Economic Affairs said that the momentum might slow moving into last month.
Industrial production continued to expand and hit a new high in October, but Moody’s Investors Service said that prolonged trade tensions between the US and China would have repercussions on production in Taiwan, particularly in the electronics sector.
Unemployment and inflation remained stable and relatively low in October, but the slow increase in real wages — the fallout of pension reform and the stock market rout — has keept domestic demand in check.
Revenue in the retail sector set a record high in October at NT$371.5 billion (US$12.04 billion), but the 0.9 percent annual growth was slower than expected, the ministry said.
The economy remains on a path to growth, just at a slower pace. Nonetheless, the economic data have generated more concern about the mismatch between domestic production and overseas shipments, as structural constraints weigh on the economic landscape in Taiwan and the nation remains vulnerable to cyclical demand linked to global macroeconomic conditions and the regional electronics supply chain.
There are always challenges. Protectionism in global trade and macroeconomic rebalancing in China continue to be the biggest downside risks to Taiwan’s economic growth.
An over-concentration in information technology and communications exports, high overseas production — especially in China — and weak investment are sending the same ripples through local industries that they did when GDP growth fell below the global average several years ago, or when the business climate monitor was flashing “red” — meaning the economy was overheating — seven years ago.
Weak economic growth stems from insufficient domestic investment, which is why policymakers are attempting to encourage Taiwanese businesspeople to return home during this period of US-China trade tensions.
However, the government must lead the nation in directly and thoroughly addressing the shortages in labor, power, water and land to achieve a substantial increase in domestic investment. Without the investment, sustaining significant growth momentum in the long term is an uphill battle.
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