The Directorate-General of Budget, Accounting and Statistics (DGBAS) reported on Thursday that Taiwan’s GDP expanded by 13.27 percent in the first quarter from a year ago. This was higher than the previous forecast of 9.24 percent issued in February and represented the largest quarterly expansion since the third quarter of 1978.
However, the unexpectedly high first-quarter GDP growth rate and a revised 6.14 percent growth forecast for the whole year compared with the 4.72 percent forecast made in February do not suggest Taiwanese consumers will be willing to spend more money during the rest of the year.
This is because the strong figures were partially inflated by last year’s relatively low comparison base and also because stagnating wages and the still-elevated unemployment rate will continue to weigh on consumer spending.
According to the DGBAS estimate, private consumption is likely to grow 1.99 percent this year, which is better than a revised 1.37 percent growth last year and compares with a contraction of 0.57 percent in 2008 when the nation was hit by the global financial crisis. However, that figure was far lower than the 5.17 percent increase in private consumption in 2004, when the nation’s GDP expanded by 6.19 percent — the last time the economy’s growth exceeded 6 percent.
Based on the statistics agency’s analysis, the impressive first-quarter economic growth had to do with fast growth in business equipment spending, inventory restocking and a surge in exports. The question is whether this growth is sustainable.
Private investment increased 37.11 percent year-on-year in the first quarter, the fastest growth since the third quarter of 1974, and the DGBAS predicted growth of 18.38 percent for the year. Yet the problem with corporate spending in the first quarter is that the purchases were mostly of imported high-tech equipment, and this will make little contribution to boosting domestic manufacturing and commerce if companies continue to source their equipment from abroad in the following quarters.
As for the increase in inventory restocking in the first three months, it will take some time to make sure whether it means businesses were upbeat about their outlook and willing to prepare inventories for future use, or if it indicated sales did not live up to companies’ expectations and thus inventories piled up in warehouses.
However, now companies have another issue to worry about — whether the export sector can sustain its strong growth throughout the year, especially given Europe’s sovereign debt problems. The Ministry of Economic Affairs’ export orders data for last month released on Thursday could shed some light on the impact of the European debt crisis.
The latest data showed export orders totaled US$33.96 billion last month, up 35.15 percent year-on-year, but down 1.25 percent month-on-month, which was mainly because of a decline of 11.04 percent in orders from Europe, Taiwan’s fourth-largest overseas market, from the previous month. In comparison, orders from the US saw a monthly increase of 6.65 percent, those from China saw a slight rise of 0.12 percent, while Japanese orders dropped 4.86 percent from the previous month.
There is little doubt that the latest economic data are impressive, but what the government should pay attention to is that growth momentum will peak in the first quarter and become weaker in the second half of the year, given rising uncertainty over Europe’s debt problems and concerns over China’s recent measures to cool its overheating economy.
This explains why, despite the very strong first-quarter GDP figure, the stock market still plunged 186.72 points, or 2.51 percent, on Friday, as investors remained wary of potential domestic and external challenges faced by the nation’s economy.
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