20111211 EDITORIAL: Government cannot get too comfortable

EDITORIAL: Government cannot get too comfortable

Several research institutes and foreign brokerages have recently forecast economic growth for Taiwan next year of between 1.5 percent and 4.4 percent. While forecasters agree that the global economic downturn would have an adverse impact on Taiwan, the wide range of predictions raises questions about the accuracy of forecasters’ research models, including the one used by the Directorate-General of Budget, Accounting and Statistics (DGBAS).

It is difficult to say which forecaster could provide the most accurate predication, especially at a time when great uncertainties about the European debt crisis make it even harder than usual for forecasters to offer accurate projections for Taiwan’s export-reliant economy.

Nevertheless, it is obvious that the government’s estimate of 4.19 percent growth next year is upbeat compared with many private institutes’ forecasts, indicating that the government might be overly optimistic about its ability to handle economic problems. The government’s reaction to the less-promising predictions made by private institutes also sends a clear message about its approach to the downturn — Council for Economic Planning and Development (CEPD) Minister Christina Liu (劉憶如) said last week that people should refrain from “over-interpreting” any single forecast.

The government reaction came after Cathay Financial Holdings Co chief economic adviser Kuan Chung-ming (管中閔), who is also a researcher at Academia Sinica, issued a report on Thursday saying that Taiwan’s GDP would grow 3.7 percent next year.

Kuan’s prediction raised eyebrows because it indicated that it would be difficult for Taiwan to maintain economic growth of 4 percent next year, as the government wishes. Moreover, Kuan said the DGBAS’ forecast method might not be accurate enough to grasp the country’s real economic situation.

In response, Liu said Kuan’s prediction was “neutral, but a bit skewed toward pessimism.” However, Kuan’s forecast was not the most pessimistic: UBS predicted 1.5 percent GDP growth, both Barclays and Goldman Sachs pitched 3 percent growth, Morgan Stanley forecast 3.1 percent and Credit Suisse predicted 3.5 percent growth.

However, the important issue is not how accurate Kuan and private institutes’ predictions are, but what the main concerns behind their gloomy forecasts are.

The government has high hopes that Taiwan’s closer trade relationship with China and the country’s nascent domestic consumption could offer a buffer against the global downturn. However, the cruel reality is that no country can escape the impact of the eurozone debt crisis — not even China — while Taiwan’s weak domestic equity market, stagnant wages and increasing number of companies implementing unpaid leave to cope with the downturn also pose a threat to consumer spending in the coming months.

More importantly, because Taiwan’s export economy has become dependent on China, what is worth noting is the knock-on effect on Taiwan’s economy if a recession in Europe — China’s largest trading partner — causes a slowdown in China’s economy.

The latest foreign trade data released by the Ministry of Finance on Thursday showed exports growing at their slowest rate last month since October 2009.

Exports and imports, which are expected to continue weakening into next year, will inevitably pull down the nation’s GDP growth. The government is not obligated to agree with the economic forecasts of private institutes, but it needs to keep abreast of the nation’s economic health and show the public what it can do to improve the situation.