In early October the International Monetary Fund released its World Economic Outlook report, according to which Taiwan’s gross domestic product is expected to grow by 9.3 percent in 2010. The report is one among many projecting a very rapid rate of growth for Taiwan this year.
Taiwan is not the only nation or territory whose economy is expected to grow quickly. The IMF report expects mainland China and India to grow by 10.5 percent and 9.7 percent, respectively. Growth in Singapore could be as high as 15 percent.
According to the Directorate General of Budget, Accounting and Statistics, in the first six months of this year, private consumption increased by 3.9 percent compared to the same period last year, much higher than the 2.2 percent average of the last 10 years. This is an indication that consumer demand is beginning to recover. Private investment has also grown by more than 50 percent, the highest rate of increase in 20 years.
How can this momentum be maintained into next year? The IMF report notes that as industrialized nations withdraw their stimulus measures, their growth rates are likely to slow down. Another factor that could put a damper on growth is that several EU nations are still wrestling with the problem of their enormous sovereign debts.
These developments could affect Taiwan’s economy, reliant as it is on exports. In addition, private consumption and investment next year are unlikely to be as high as they were this year.
These considerations suggest that the economy will probably grow at a much slower pace in 2011. Indeed, the IMF report predicts that Taiwan’s GDP will increase at 4.4 percent next year, less than half of this year’s rate.
Faced with these prospects, the government must plan ahead and set its economic policies and objectives for 2011.
Since exports are likely to decrease, growth next year will most likely have to come from an increase in internal demand. And to keep internal demand high, the unemployment rate must be brought down.
According to the DGBAS, in August of this year the unemployment rate stood at 5.17 percent, one percentage point lower than it was last August. While this is welcome news, it must be borne in mind that the government has been able to keep the unemployment rate low in part by hiring many temporary workers.
Only when the private sector begins to hire more will the unemployment problem really have been solved. Economic revival driven by private enterprise ensures that consumer demand will increase.
Private investment can be raised in two ways. The role of the service sector should be enlarged—something the government can help along by encouraging foreign investment in the sector.
The government should also ensure that the cross-strait Economic Cooperation Framework Agreement realizes its full commercial potential. The present administration should lower barriers to investment placed on mainland Chinese firms and encourage Taiwanese firms to invest at home. It must improve its administrative efficiency, so that investment projects already being planned can be carried out successfully.
These ideas, it should be noted, all stem from the recent IMF report. The government should perhaps consider preparing a report of a similar nature at the end of each year. Such a report would not only evaluate economic developments within the last year, it would also provide an economic forecast into the year that follows.
In addition, the report should outline some of the government’s main economic objectives and policies for the coming year. This kind of document would be an important reference for companies and investors both local and foreign. (HZW)
(This commentary originally appeared in the Economic Daily News Oct. 12).
Write to Taiwan Today at ttonline@mail.gio.gov.tw