Taiwan is a country with substantial savings. In its latest forecast, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said that the nation’s ratio of excess savings to GDP this year would exceed 10 percent for the 11th consecutive year. Although the figure is expected to fall to 13.22 percent from 14.87 percent last year as economic growth slows, while savings and investments decline, Taiwan has a high level of excess savings. The DGBAS predicts the amount could reach NT$3.08 trillion (US$100.24 billion) this year, exceeding NT$3 trillion for four consecutive years, following NT$3.37 trillion last year, NT$3.66 trillion in 2021 and NT$3.12 trillion in 2020.
As cumulative excess savings over the past four years are expected to total NT$13.22 trillion and the amount has exceeded half of the nation’s GDP, the situation demands the government’s attention, with initiatives to encourage investment or spending to boost the economy. Based on DGBAS data, Taiwan’s excess savings rate was 2 to 3 percent in the 1990s, before gradually moving into the teens in the early 2000s and reaching 15.53 percent in 2017. That was the highest since 1987. The rate dropped to 13.32 percent in 2018 and 11.82 percent in 2019, but rebounded to 15.66 percent in 2020 and 16.85 percent in 2021. While the figure retreated to 14.87 percent last year, it was still the highest in Asia, compared with China’s 2.3 percent, Japan’s 2.1 percent and South Korea’s 1.8 percent.
Taiwanese have long considered thrift a virtue, and excess savings means that local businesses and consumers have large cash reserves. Too much extra savings also indicates the nation’s private consumption and investment momentum is lacking. If businesses and consumers are reluctant to invest or spend in the domestic market to stimulate the economy, it is likely that such money would go overseas to finance investments in other countries. The latest central bank data showed that the nation’s financial account — which includes direct and portfolio investments — registered net outflows for the 51st consecutive quarter in the first quarter of this year, at US$12.19 billion, while aggregate net outflows were US$742 billion at the end of March.
In the past few years, Taiwanese businesses have brought large amounts of funds back home after the government launched incentives to do so. However, these funds have not been fully channeled into real production, but instead have been used to speculate in domestic real estate — which has increased home prices — or spent on domestic equities — which has further amplified speculation and investor risk.
Excess savings is a complicated issue that requires more analysis by government agencies to help explain the reasons behind its surge in the past few years, including the COVID-19 pandemic, a trade surplus, the investment environment, the economic structure and the money supply. It is also important to know whether the increase is due to a rapid growth in household savings or because of a marked increase in savings by private corporations, and why.
The increase in savings is a severe warning for Taiwan, as it not only presents a short-term economic challenge, but also a long-term competitiveness issue. The big question is what the government can do to channel these funds into investments in the real economy and if government agencies from the central bank to the National Development Council and the Ministry of Economic Affairs can escalate efforts to tackle the issue.
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