"Exports used to account for more than 70 percent of our gross domestic product but their contribution this year could be dampened by the international slowdown,” Yeh Wan-an, an advisor to the Chung-Hua Institution for Economic Research, said June 19.
Yeh explained that imports of raw materials and the private sector’s willingness to invest are significantly affected by foreign demand. “Exports, imports and private investment are all vital to our economic prospects but external demand in particular will be the barometer for the pace of recovery,” he said.
The island’s real GDP in the first quarter tumbled 10.24 percent from the corresponding period last year, according to figures disclosed by the Directorate-General of Budget, Accounting and Statistics in May. “International economic contraction in the first quarter was worse than expected and our exports slumped 36.65 percent,” said DGBAS Minister Shih Su-mei.
The downward spiral of exports consequently undermined imports and private investment. But the government agency is pinning hopes on improvement in the second quarter in line with the rebound worldwide. The year-on-year decline in the economy is projected to narrow to 8.5 percent in the second quarter and 2.98 percent in the third before returning to a growth of 5.2 percent in the last quarter.
The Cabinet-level DGBAS is also predicting quarter-on-quarter growth from the second quarter. With the GDP ending its downswing in the first three months of the year, sequential increases are predicted for the next three quarters. The government forecasts that the GDP will inch up 0.34 percent in the second quarter from the preceding three months, followed by a boom of 7.66 percent in the third quarter and a 2.34-percent rise in the last.
Academia Sinica, Taiwan’s top research body, also expects better performance going forward: “The worst scenario has ended, and Taiwan’s economy could experience a gradual recovery as leading indicators in advanced economies signal bottoming out,” Wu Chung-shu, a research fellow with the institution said June 19. He added that the pace of the island’s rebound will depend on export demand from major economies such as the United States and Europe.
UBS Wealth Management Research stated July 1 that Asia’s strong rebound from the lows of the financial crisis is sustainable relative to its global peers. While UBS acknowledged the risk of consolidation over the short term, it views Asia as having a leg up over the rest of the world given the region’s fundamentals, liquidity and existing investor positions.
As for Taiwan, the island’s economic outlook will be challenging and its GDP is forecast to contract 4.5 percent in 2009, followed by a “shallow recovery” to a positive growth of 2 percent in 2010, according to Kevin Hsiao, head of UBS Taiwan Wealth Management Research. He believes it will take a sizeable recovery in exports to stem increasing unemployment.
Recent data point to stabilizing exports, Liang Kuo-yuan, president of the Taipei-based Polaris Research Institute, said June 22. The domestic economy managed mild improvement in the second quarter thanks to rush orders for exports. While the island’s exports and export orders have yet to return to the level posted prior to the global financial crisis, government readings recently showed a narrowed year-on-year drop and improved month-on-month growth.
Statistics from the Ministry of Finance indicated that exports hit a six-month high of US$16.17 billion in May. The Ministry of Economic Affairs said export orders in the same month reached US$25.17 billion, a high in seven months.
While economists are divided about the speed of an economic comeback, many agree that it will take some time before there is a full-scale recovery. Insufficient strength worldwide suggests a slow rebound for the island, Academia Sinica’s Wu said. Moreover, “whether the government investment projects can be implemented as scheduled will affect the economic situation,” he added.
Prices of crude oil and commodities, developments in major economies, cross-strait relations and the influenza A (H1N1) epidemic will also be variables affecting production, Wu said. The leading research body forecasts the local economy will suffer a 3.46-percent setback in 2009.
In a report released June 22, the World Bank projects that global output will fall by 2.9 percent and world trade will plummet nearly 10 percent. “Extraordinary measures by governments around the world have helped save the global financial system from complete collapse, but the economic recession in real sectors persists,” according to Justin Lin, World Bank chief economist and senior vice president.
Other experts also see continued recession. Hans Timmer, director of the World Bank’s Development Prospects Group, said “While the global economy is likely to begin expanding again in the second half of 2009, the recovery is expected to be subdued as global demand remains depressed, unemployment remains high, and recession-like conditions continue until 2011.”
With global recession taking a toll on the island’s export-oriented economy, the administration of President Ma Ying-jeou has been keen to boost domestic demand. Earlier this year the government delivered NT$85.7 billion (US$2.6 billion) in consumer vouchers to the public in an effort to power private consumption. An additional special budget of NT$150.7 billion has been earmarked to expand infrastructure projects. Urban renovation, measures to help employment, tax incentives and permission for more mainland tourists to visit the island also highlight such commitment.
“These economy-stimulus packages together are estimated to contribute 2.97 percentage points to GDP growth this year,” the DGBAS minister said. Taking into account these domestic factors coupled with Global Insight Inc.’s May projection of a 2.6-percent fall for the 2009 global economy, the DGBAS forecasts a decline of 4.25 percent for Taiwan’s economy in 2009.
Taiwan Research Institute echoed the positive impact of government investment in light of the global recession. “Government commitment will be the main positive driving force for the economy,” TRI Acting President Wu Tsai-yi said June 23. The think tank projects a retreat of 4.45 percent in Taiwan’s 2009 GDP. However, the magnitude of economic rebound worldwide, and energy and commodity prices will be uncertainties influencing Taiwan’s performance, he noted.
Write to Adela Lin at adela2009@mail.gio.gov.tw