Saving money can be a good habit, as it helps people and companies safeguard their livelihoods during a crisis.
However, building an excessively large savings pool could spell trouble for a nation’s economy. A spike in gross savings — gross national income minus expenditures or investments — indicates a lack of domestic investment and consumption, which could ultimately lead to economic stagnation.
Taiwan is facing just such a risk, as its gross domestic savings are forecast to climb to about NT$2.4 trillion (US$81.22 billion) this year, pushing the excess savings rate to 12.35 percent, the Directorate General of Budget, Accounting and Statistics (DGBAS) has said.
That means NT$12.35 in every NT$100 of savings would be idle.
Taiwanese have long considered thrift a great virtue, and as a result the nation’s excess savings rate is set to surpass 10 percent for the eighth consecutive year, according to DGBAS data.
Last year, the nation’s gross savings shrank to NT$2.24 trillion from NT$2.48 trillion a year earlier, with the excess savings rate improving to 11.59 percent from 13.23 percent, the data showed.
The agency attributed the increase in this year’s savings to the COVID-19 pandemic, as households and companies have been reluctant to spend money on unnecessary items, new technologies or assets.
As a result, the nation’s savings rate is expected to rise from 34.35 percent last year to 35.79 percent, which would be the highest in three decades, the DGBAS said.
As the pandemic hinders trade and weighs on economic growth, the government is pulling out all the stops to stimulate consumption and investment — it is issuing Triple Stimulus Vouchers to boost individual consumption and magnifying the incentive investment programs initiated by the Ministry of Economic Affairs to attract businesses.
The investment programs, launched last year amid a US-China trade spat, aim to spur investment by Taiwanese firms through lower interest rates, longer loan terms, relaxed labor restrictions, and easy access to land and utilities.
These have attracted more than 500 local manufacturers, including LCD panel maker Innolux and passive component maker Yageo, which have pledged to invest NT$1 trillion on capacity relocation to Taiwan, or automating existing production lines. The figure might look significant, but most of the investments are to be spread over about three years.
The DGBAS expects the increase in private investment to boost economic growth to 1.67 percent this year and help the nation avoid an economic contraction, unlike most other countries, including the US, whose economies are set to shrink due to the pandemic.
However, the pace of investment is not enough to solve the issues of excessive savings and insufficient investment in Taiwan.
The government needs to come up with broader plans and long-term efforts to speed up domestic investment, for example by mapping new projects to spur investment on technologies with high growth potential, such as 5G and artificial intelligence.
It should also create a more business-friendly investment environment to attract multinational companies, rather than relying solely on local firms.
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