Sun, May 09, 2010 page8

• EDITORIAL : Don’t underestimate Europe crisis

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  The nation’s latest exports figure should give a much-needed boost to investors’ morale, which was dampened by a series of negative news items from abroad, in particular concerns about the debt crisis in Europe. However, the key to the plunging mood — which caused the local bourse to drop 437.15 points, or 5.46 percent, last week — is the issue of Greece’s economy, which is no longer a problem limited to the eurozone, but is now a global concern.

  On Friday, the Ministry of Finance said the nation’s external trade continued to grow for the sixth straight month last month, with exports increasing 47.8 percent year-on-year to US$21.93 billion and imports expanding 52.6 percent to US$19.38 billion.

  The pace of export growth slowed somewhat last month from the previous month, as companies were entering the traditional low season this quarter. But investors might rediscover some comfort, as the trade figure showed Taiwan’s shipments to China (including Hong Kong), ASEAN, the US, Europe and Japan continued to recover from a year ago and approached pre-crisis levels.

  Government officials and economists said the outlook for the nation’s export performance remained positive, given that the export orders for March — which serve as an indication of shipments by Taiwanese firms over the next one to three months — grew 43.66 percent year-on-year to a record US$34.39 billion.

  They also said the European debt crisis would pose no direct threat to Taiwan’s economy, as the nation’s exports to Europe reached US$2.2 billion last month and only accounted for 10 percent of the total. What has made people nervous lately, they added, was a sense of uneasiness largely confined to the capital markets.

  However, no one should underestimate the impact of any potential fallout from Europe as a result of the sovereign debt crisis, because it could affect investors’ confidence in the global economy and, in the worst-case scenario, dampen their outlook on Taiwan’s economy.

  This is because Europe is China’s biggest export market with a share of around 20 percent, and China is where most Taiwanese goods were sent to, or a share of 44.2 percent of the total last month. As most of Taiwan’s exports to China are categorized as re-­exports to other markets, a slowdown in Europe would undoubtedly create a feeling of uncertainty about the nation’s economy.

  Moreover, it is possible the market’s pessimism could spread, as the European debt crisis could further complicate the global economy as it continues to integrate, on top of concerns of China’s overheating economy and a continued rise in global raw material and crude oil prices.

  Even so, for the time being it is too early to forecast the return of a bear market or a fast rebound. Instead, investors should expect continued volatility and market corrections unless the EU and IMF carry out emergency measures to deal with the Greece problem soon.

  BNP Paribas analysts last week drew parallels between Europe’s debt crisis to that of large US finance companies during the economic crisis, likening Greece to Bear Stearns, Portugal to Lehman Brothers and Spain to AIG, to remind people what the global financial crisis was about nearly one-and-a-half years ago.

  Whether one agrees with BNP’s warning or not, investors are looking for signs of swift action from European leaders. Unless there are some snappy moves to halt the spreading worries, the overall market sentiment will still be negative.
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