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EDITORIAL: Economy
faces bumpy road
If the latest economic forecast by the government is to be believed, it faces a
difficult mission delivering on its promise of maintaining GDP growth of 5
percent this year. The bad news is that the real picture would fall far short of
the government¡¦s estimate if more negative elements are factored in.
On Thursday, the Directorate-General of Budget, Accounting and Statistics (DGBAS)
again revised downward its economic growth forecast for this year to 4.81
percent from the 5.01 percent it forecast last month, after it last month
adjusted downward the forecast to 5.01 percent from the 5.06 percent predicted
in May. For next year, the government said it now expected the economy to expand
4.58 percent.
The DGBAS revised downward its growth forecast for the first quarter to 6.16
percent from 6.55 percent, but revised upward its estimate for the second
quarter to 5.02 percent from 4.88 percent. It expected the economy to expand
3.48 percent in the third quarter and 4.71 percent in the fourth quarter. With
an average of 5.59 percent growth in GDP in the first half of the year based on
the latest government data, the economy is predicted to slow to an average
growth of 4.095 percent in the second half, 0.21 percentage points lower than
the previous estimate issued last month.
Either from a seasonally adjusted annualized rate (SAAR) or seasonally adjusted
quarterly rate (SAQR), the DGBAS data showed the nation¡¦s economy would contract
in the third quarter from the previous quarter and mark the first contraction
since the first quarter of 2009. Whether the economy would hit a trough in the
third quarter, as Citigroup predicted, or climb off the bottom in the first
quarter next year, as Morgan Stanley¡¦s predicted, Taiwan faces formidable
challenges in the global economic environment during the second half of the
year, such as the eurozone¡¦s sovereign debt crisis, the lackluster economic
recovery in the US and inflationary pressures in emerging markets.
The government also faces a basketful of uncertainties at home, which DGBAS
statisticians have not taken into account in their downward revision of the GDP
growth estimate released on Thursday.
These uncertainties are the likely appreciation of the New Taiwan dollar against
the US dollar on renewed recession fears for the US economy, the shutdown of
Formosa Plastics Group¡¦s plants in the Mailiao petrochemical complex for safety
inspections and the fewer-than-expected number of Chinese tourists and their
lower-than-anticipated spending. In Formosa Plastics Group¡¦s case, this year¡¦s
GDP growth could be cut by a further 0.2 percentage points if the Mailiao
complex remains partially shut through the end of the year, according to the
DGBAS¡¦ estimate.
What can the government do to deal with the challenge? It could seek to further
boost domestic consumption or look for ways to attract more foreign companies or
overseas Taiwanese businesses to invest in Taiwan. For instance, if a report by
Japan¡¦s Sankei Shimbun last week that Taiwan and Japan may enter a bilateral
investment protection agreement next month proves to be true, it would
facilitate more economic exchanges between the two countries.
If the government could step up efforts to invite more Japanese companies to
invest in Taiwan at a time when Japan is rebuilding its global production
strategy following the March 11 earthquake and tsunami, it would help offset the
falling private and public investments the nation has seen this year.
Moreover, because Taiwanese businesses are facing surges in wages and land
prices in China, as well as rampant intellectual property theft and other
violations there, the government could invite them to invest in their home
market. At least, this is what the government can and should do now, which would
be better than becoming increasingly complacent about the inking of the Economic
Cooperation Framework Agreement with China a year ago.
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