20130911 EDITORIAL: Uncertainties ahead for economy

EDITORIAL: Uncertainties ahead for economy

A gain in exports last month added to a slew of positive economic data that indicate a rosy outlook for Taiwan in the second half. The nation’s economic recovery looks under way, but uncertainty remains because of the US’ stimulus tapering and its effects on emerging markets.

Taiwan’s exports grew for the fourth consecutive month last month, according to the statistics released by the Ministry of Finance. Exports increased 3.6 percent annually to US$25.64 billion, benefiting from China’s inventory buildup for next month’s shopping season and economic recovery in the US and Europe.

Other government data issued by the Council for Economic Planning and Development (CEPD) earlier this month also indicated that Taiwan’s manufacturing sector was expanding at a stable pace, as reflected by acceleration of new orders, at 55.1 percent. The Purchasing Managers’ Index released by the CEPD was unchanged at 52.6 percent last month from July. What is more striking is that the figure for business prospects over the next six months returned to positive territory at 53.3 percent, snapping five months of decline.

However, those seemingly encouraging numbers hide signs of potential weakness ahead. As the US Federal Reserve is widely expected to begin cutting bond purchases from its current level of US$85 billion per month from this month, the IMF has warned emerging countries to cooperate to fend off potential adverse repercussions for their economic growth.

An indicator of the economic future can be seen in Taiwan’s decelerating exports to ASEAN members. Last month, ASEAN exports increased at their slowest annual rate over the past four months, gaining 2.9 percent to US$4.78 billion, the ministry’s tally showed. ASEAN is the nation’s second-biggest export destination, accounting for 18.6 percent of total exports last month, surpassing the US and Europe.

Looking into the details of export items last month, the growth did not cover all sectors. Growth in the outbound shipments of chipmakers — including Taiwan Semiconductor Manufacturing Co, up 8.9 percent year-on-year to US$56.77 billion — helped the overall expansion in exports of electronic products. Electronics is the pillar of Taiwan’s exports. Meanwhile, outbound shipments of information and communication products, primarily mobile phones from HTC Corp, inched up 1.5 percent annually, but fell for a third consecutive month.

Imports were on the wane as well. Imports shrank for the second month to US$21.06 billion, hitting their lowest level since February’s US$18.81 billion. Significantly, imports of capital equipment, manufacturing equipment in particular, contracted 7.7 percent annually and 5.8 percent sequentially, to US$2.73 billion. In other words, companies invested less in manufacturing equipment, mostly because of weakening order visibility. That will mean a reduction in private investment.

This year, GDP might grow by 2.31 percent year-on-year, as the government projected. However, how about next year? Growing uncertainties about the Fed’s monetary policy and its influence on the economies of emerging countries threaten to weaken exports after orders for the Christmas shopping season. At the same time, China, Taiwan’s biggest export destination, is likely to trim its annual GDP growth forecast to 7 percent for next year from its previous estimate of 7.5 percent.