EDITORIAL: Facing up
to economic worries
The government may have been too busy recently dealing with a major bribery
scandal to pay close attention to the latest actions taken by three of the
world¡¦s major central banks, but it does not take a genius to figure out how
serious the current global economic crisis is and what implications it may have
for Taiwan¡¦s economy.
On Thursday, within 45 minutes of each other, central banks in the UK, China and
Europe moved separately to offer further monetary stimulus to improve their
domestic economic environments. These developments came only two weeks after the
US Federal Reserve decided to extend its bond-buying program to boost borrowing
and investment.
In a nutshell, all of these moves suggest that negative global conditions are
either showing little sign of abating or are worsening faster than expected. The
latest actions by the three central banks last week followed coordinated action
taken by six major central banks in the US, Europe, Canada, the UK, Japan and
Switzerland late last year to provide liquidity for other currencies in order to
reassure markets about the eurozone economy and the health of the global banking
sector.
However, this time is somewhat different from before because, first, no one
knows if the moves were coordinated in advance and, secondly, policymakers in
these countries wanted simply to stimulate their domestic economies rather than
to keep the eurozone crisis at bay, as seen previously. An important question
that needs to be asked is: Can the latest central bank moves achieve this goal?
The answer to this question is probably ¡§No.¡¨
While the latest measures show that these central banks are recognizing similar
problems in their economies, they only serve to delay their economies from
further erosion, in that they do not provide any fundamental solutions to their
economic woes ¡X which are not about their liquidity conditions, but their weak
levels of aggregate demand in terms of slowing consumer spending and softening
investment activities.
That most Asian stock markets fell on Friday is an indication that people are
continuing to worry about the global economy, as well as their domestic economic
situations, rather than their lack of confidence in the action of the central
banks. Even IMF Managing Director Christine Lagarde warned on Friday that the
global situation could worsen and the fund would have to cut its global growth
outlook later this month.
People are now waiting to see if the US central bank will provide a new monetary
policy stimulus in the near term. While the latest US job data released on
Friday gave no reason for the Federal Reserve to undertake more easing measures
soon, a more important point at this stage is to consider if the US central bank
actually has any more stimulus measures that can accomplish anything, given the
failure of its previous measures in aiding economic growth.
Whatever the future developments are, the troubled eurozone is dragging down the
global economy and has prompted countries around the world to ease monetary
policy to deal with their problems.
However, emerging markets including Taiwan should be worried about the potential
capital inflows under these loose global monetary conditions and take
pre-emptive measures to prevent asset bubbles from forming, which the Bank for
International Settlements warned in its annual report last month could generate
a new global financial crisis.
To Taiwan, the cutting of key rates twice in a month by China could pose an
extra concern, as China is now the nation¡¦s biggest export market, raising more
speculation about China¡¦s second-quarter GDP data due this week. Against this
backdrop, the government will need to pay extra attention to the domestic
economy.
Unfortunately, given the issues on the government¡¦s agenda and what it has done
to date, let¡¦s just keep our fingers crossed that we do not have to face that
gloomy future.
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