The predictions of the world-famous institute Global Insight for this year’s economic outlook have been notably more optimistic of late. While last June it predicted growth of just 1.9 percent for 2010, by mid-December it had upped its forecast to 2.8 percent, which when compared with 2009’s negative growth of 2 percent is a tremendous difference.
Moreover, most analysts have been revising their predictions upwards month by month for the United States, the eurozone countries and the Asia-Pacific region. The global economy appears to have shrugged off this great recession.
As the world’s economic prospects brighten, so do Taiwan’s. Both domestic and foreign observers have vertically adjusted their forecasts for Taiwan’s 2010 economy.
The more conservative Directorate-General of Budget, Accounting and Statistics under the Executive Yuan adjusted its economic growth estimate for this year from 3.92 percent in August to 4.39 percent, while civic institutions have all predicted growth exceeding 4 percent.
In descending order, the Academia Sinica forecast 4.73 percent, Chung-Hua Institution for Economic Research 4.66 percent, Polaris Research Institute 4.57 percent, Taiwan Research Institute 4.45 percent and Taiwan Institute of Economic Research 4.21 percent.
It is evident from these predictions that all the relevant research bodies have gone from pessimism to optimism concerning economic trends for the coming year in Taiwan.
Supporting the sunny outlooks of these institutions is their belief that with an economic upswing in the U.S. and Europe this year, Taiwan’s exports will gain strength, and private investment and consumption will likewise increase.
According to the DGBAS’ evaluation a month ago, Taiwan’s exports will be up 15.3 percent this year, private investment will jump 6.85 percent, and domestic consumption will grow by 1.77 percent, while the GNP per capita will increase to US$17,936. If these forecasts are accurate, economic prosperity is truly in sight.
However, it is worth noting that economic predictions have always involved many variables impossible to quantify and difficult to bring into the equation, and thus there have always been significant differences between predicted figures and the final statistics. A close look at current economic trends reveals at least three potential threats to Taiwan’s economy in 2010.
First is regional economic integration in Asia, which is entering a new era this year, with not only the Association of Southeast Asian Nations plus mainland China forming a free trade zone, but the free trade agreement between South Korea and ASEAN also taking effect. In addition, South Korea’s FTAs with the U.S. and European Union can expect to be passed by their respective legislatures, followed by reduced tariffs.
Exports from South Korea have always overlapped to a great extent with Taiwan’s, and the three regions with which its FTAs go into effect this year—the U.S., EU and ASEAN—make up nearly 40 percent of Taiwan’s export market.
With South Korea receiving tariff-free treatment while Taiwan must still pay tariffs, trade diversion is bound to occur. Under these conditions, it remains to be seen whether Taiwan’s exports will actually grow by 15 percent this year. As Taiwan’s economy has always depended on exports, there is definitely something to worry about here.
Second is drought in southern Taiwan. The dry season has come early this year, with Zengwen Reservoir at only 40 percent of its holding capacity and Nanhua Reservoir, which provides water to the Southern Taiwan Science Park and industrial zones, at just 63 percent.
According to past hydrological data, Taiwan still faces over four months of the dry season, which means that the south will suffer extreme water shortages in the first half of the year. The science park and industrial zones consume huge quantities of water, so the island’s industrial production and commercial activities are up against no small risk this year.
Third is the high unemployment rate. A major reason the research institutes see a strong economy this year is the expectation that private consumption will rise. But the continuing high jobless rate makes it hard to be so optimistic.
Official statistics show that most of those who are unemployed are the main breadwinners of their families, so when one person is out of work the whole family is affected. This means that as many as 1.35 million people are suffering the effects of joblessness.
Economic theory and experience show that recovery in the job market is exceedingly slow, so unemployment will be a key factor in determining the island’s economic growth this year. In addition, the salaries of over 6.3 million employees have fallen by 2.3 percent, a phenomenon rarely seen in the past. As household incomes fall, consumer spending will be influenced, dampening growth in the commercial sector.
Based on current world economic trends and the experts’ predictions, there are reasons to be optimistic about Taiwan’s economy this year. Yet it cannot be denied that this path to stable growth is fraught with danger. The economic integration of Asia, especially, will begin to influence the situation very rapidly.
In addition to actively negotiating the cross-strait economic cooperation framework agreement, the government must consider supplementary and alternative measures. Although the ECFA is a necessary step, it cannot be the only action taken.
The government should abandon traditional thinking on development and quickly draw up an economic blueprint incorporating strategic considerations. Otherwise, economic worries will stay on and the challenges of the next 10 years will be even more forbidding.
In his New Year’s Day address President Ma Ying-jeou, in line with widespread expectations, called 2010 “a key year to rejuvenate Taiwan’s economy.” Now it will depend on what administrative agencies can deliver. (THN)
(This commentary first appeared in the “Commercial Times” Jan. 4, 2010.)
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