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Source: www.asiaecon.org |

TAIWAN'S ECONOMY SUFFERS FROM GLOBAL ECONOMIC DOWNTURN


The Taiwanese economy has been hit hard by the global economic downturn. According to The Economist, Taiwan has suffered the worst among the 55 countries it tracks weekly, based on industrial production. Industrial output fell by 32 percent between December 2007 and December 2008. The quarterly measure of industrial output decreased at an annual rate of 62 percent. Forecasts about  Taiwan's Gross Domestic Product (GDP) all agree that the economy will contract in 2009.  But these forecasts also range from at least 3 percent to as much as 11 percent. Regardless of such forecasts, it is clear that Taiwan is most likely to face its steepest downturn in its history in 2009.


The Taiwanese economy has been hit hard by the global economic downturn. According to The Economist, Taiwan has suffered the worst among the 55 countries it tracks weekly, based on industrial production. Industrial output fell by 32 percent between December 2007 and December 2008. The quarterly measure of industrial output decreased at an annual rate of 62 percent. Forecasts about  Taiwan’s Gross Domestic Product (GDP) all agree that the economy will contract in 2009.  But these forecasts also range from at least 3 percent to as much as 11 percent. Regardless of such forecasts, it is clear that Taiwan is most likely to face its steepest downturn in its history in 2009.

Taiwan is a very export-oriented economy. In fact, exports and foreign trade have been the main engine of growth for the past 40 years. The share of exports in the country’s GDP has been steadily increasing, from 51.45 percent in 1980 to 77.3 percent in 2008. Industrial goods, such as electronic and electrical products, metals and auto parts, constitute the majority of its exports. The main destinations of its exports are China, the U.S., Hong Kong, Japan and Singapore.

As these countries’ economies continue to suffer from the global economic downturn, they consequently decrease their demand for imports. Therefore, Taiwan’s exports and its GDP suffers. Exports plunged by a record of 44 percent in the year to January. Exports to China, its biggest market (26.6 percent of Taiwan’s total exports), declined by 59% over the past year.

Besides the drop of global demand for Taiwan’s products, there are other factors that hurt the country’s economic figures. One is the lack of available trade credit. It is becoming increasingly difficult for Taiwanese firms to obtain trade credit for the goods they export, as loans for companies dry up worldwide.

Another factor that hurts Taiwan’s exports is their currency’s relative strength. For example, the New Taiwan dollar has appreciated more than 40 percent against the South Korean won since the beginning of 2008. This makes Taiwanese products a lot more expensive to import.

As the international aspect of its economy suffers, its domestic economy is also negatively affected. Taiwanese firms, struggling from falling export revenues, have mandated their employees to take unpaid leave. For example, over 78 percent of the 130,000-strong work force at Hsinchu Science-based Industrial Park, the country’s signature high-tech hub, are taking 1-2 days per week of unpaid leave. Taiwanese firms are also expected to start lay offs after the lunar new year. In addition, average wages have also decreased by 5 percent in real terms over the past year. Moreover, unemployment figures rose to a six-year high of 5 percent in December 2008.

Without jobs and money in their pockets, Taiwanese households are decreasing their consumption. The volume of retail sales fell by 11 percent in the year to December. Moreover, real private consumption is estimated to decrease by 3 percent in 2009.

To mitigate the negative effects of the global economic downturn on the economy, the Taiwanese Cabinet has passed an NT$500 billion ($14.5 billion) stimulus package called the “Special Statute for Stimulating the Economy via Expanding Infrastructure Investment”. As the name suggests, the bill, if approved by the Legislative Yuan, will authorize the financing of several infrastructure projects over the next four years. It is planned that NT$133.1 billion ($3.8 billion) will be spent this year, including NT$103.9 billion ($3 billion) to expand public works projects and NT$29.2 billion ($844.3 million) to sponsor a job creation program. Moreover, the government is giving each citizen a NT$3,600 ($106) voucher to boost consumer spending. Government plans for a fiscal stimulus, consumer handouts and tax cuts are worth around 3 percent of GDP in 2009. In addition, the Central Bank of China (Taiwan’s central bank), has cut interest rates down to 1.5 percent to encourage investment.

Despite the gloomy economic figures, the Taiwanese government is hopeful for the longer term health of the economy. This is particularly due to improving ties with mainland China, one of the leading markets for exports and leading suppliers for imports. They hope that such improvement in ties will benefit the economy by strengthening its bilateral trade and by encouraging Taiwan-based businessmen working in China to come home more frequently and boost domestic consumption.

Source: www.AsiaEcon.org
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Source: www.asiaecon.org |


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