On Friday, Singapore’s latest economic data showed its economy contracted for a second consecutive quarter in the third quarter, bringing the city-state to the brink of recession. This news was all the more worrisome because Singapore was the first nation in the region to release third-quarter GDP figures and its performance can shed some light on Taiwan’s export-oriented economy.
The Ministry of Finance said on Tuesday that exports dropped 1.6 percent year-on-year last month to US$21.85 billion. The decline, the first in more than six years, was a surprise to industry watchers because it was a sharp reversal from an export growth of 18.4 percent in August and showed an across-the-board weakness in the country’s major export markets, especially China (including Hong Kong), which President Ma Ying-jeou’s (馬英九) government hopes will re-energize Taiwan’s economy.
A closer look at the export data showed Taiwan’s trade surplus dropped 74.3 percent to US$810 million last month from the same period last year. Moreover, in the third quarter, the surplus fell 90 percent to US$460 million from the second quarter’s US$4.72 billion and 86 percent from the first quarter’s US$3.3 billion. This has alarming implications for GDP growth in the fourth quarter, not to mention the whole year.
Given the escalating global financial turmoil, the central bank cut its policy rate from 3.5 percent to 3.25 percent on Thursday, following other central banks’ efforts to preemptively stem liquidity problems. Central bank Governor Perng Fai-nan (彭淮南) admitted that the risk of economic drawback domestically has increased.
While Perng emphasized that the economy was not at risk of a recession, the latest economic forecast for Taiwan by the IMF — along with other predictions made by various foreign brokerages — show Taiwan is facing growing headwinds.
On Wednesday, the IMF sharply cut its forecast for Taiwan’s economic growth next year from its 4.1 percent prediction in April to 2.5 percent on the back of the global downturn. However, in its latest World Economic Outlook, the fund said Taiwan’s economy was likely to grow 3.8 percent this year, up from its April estimate of 3.4 percent.
On Thursday, Standard Chartered Bank lowered its forecast for Taiwan next year from 4.8 percent to 3.1 percent, after Deutsche Securities cut its forecast from 3.3 percent forecast in June to 1 percent.
The benchmark TAIEX has plunged nearly 40 percent since the beginning of this year. No one knows when the market will bottom out. So Taiwan is unlikely to achieve the Ma administration’s target of 4.3 percent growth this year and 5.08 percent next year.
Finally, Minister of Economic Affairs Yiin Chii-ming (尹啟銘), who once predicted the TAIEX could rise to 20,000 points under the new government, said on Thursday that the public would suffer at least another year of hardship amid the current global financial crisis.
Yiin’s words were a reminder of what then minister of economic affairs Lin Hsin-yi (林信義) said eight years ago — the public needed to be prepared for days of hardship in 2001. Lin’s words were followed by a record GDP contraction of 2.17 percent in 2001.
As a spate of recent government measures have failed to boost market confidence, people have to wonder how far away we are from a repeat of 2001.
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