Taiwan economy

By Shaomin Li of Old Dominion University

Saturday evening at a concert hall parking lot, the cars move like sharks, hunting for a parking space. When they find one, some drive in head-on, while some make the effort to reverse.

Obviously, reversing in takes more time and effort than driving in head-on. But it makes it easier, quicker, and safer to exit. So we may conjecture that people who take the trouble to back their cars in demonstrate an ability to delay gratification: they are happy to invest more time and effort now to enjoy the fruits of their labour later. 

Taiwan’s growth for Q3 came in lower than expected: it was 1.58 per cent year on year, against a government forecast of 2.47 per cent.

But there are reasons to be cheerful. 

Taiwan’s exports slumped 7 per cent in September year-on-year, far worse than analysts had predicted. That’s the bad news.

The good news – and it’s a crumb of comfort – is that the electronic parts industry managed to squeeze into positive territory, with a smidgen of growth. Plus European demand is holding up. Those are the few positives. 

A weak start to the new month for Asian equity markets following last week’s turmoil.

Investors worries’ about the possible end to the US Fed’s QE programme were compounded by generally gloomy PMI figures for key Asian economies, not least China. The MSCI Asia ex-Japan index was 0.5 per cent lower at 3.30pm in Hong Kong. For emerging market investors the only consolation was that in Tokyo things were much worse, with the Nikkei closing 3.7 per cent down. 

Rain washed out the inaugural anniversary celebration for Taiwan’s president Ma Ying-jeou; forecasts for full-year economic growth are being cut; and two of the country’s fighter jets have crashed during training exercises in the last week.

But there could soon be at least one bright spot in the gloom for Taiwan. Legislators are trying to lighten an unpopular transaction tax that has weighed on the local market since it first passed last year. 

More evidence of global economic slowdown, as if we need it.

Taiwan on Tuesday announced a plunge in GDP growth to 1.5 per cent year-on-year in the first quarter of 2013, less than half the 3.7 per cent in the previous quarter and well below forecasts of 3.1 per cent.

By global standards, Taiwan is a smallish economy. But with its trade links to the rest of the world, it serves as a useful harbinger. And this is not good news. 

Taiwan’s unpopular president Ma Ying-jeou (left) has overhauled his cabinet to try to counter criticism that his administration has not done enough to strengthen the country’s struggling economy.

His new premier faces a challenging task assuming the post at a time of such public discontent. The toughness of the job is underscored by the speed with which his predecessors quit the post — he will be Taiwan’s fourth premier in the past five years. 

It’s always nice to finish the year on a high note. Taiwan’s GDP turned back up in the fourth quarter of 2012, registering 3.4 per cent growth and pulling up a lacklustre year to 1.25 per cent.

It’s a complete reversal from a year ago, when Q4 GDP was something of a sour note after a good year. So what does 2013 have in store? 

If Taiwan’s gadget makers were hoping for year-end shoppers to ride sleigh-board to their rescue, trade figures out on Friday will have been a big disappointment. Christmas, it seems, is hardly coming at all this year.

Exports in November rose just 0.9 per cent year-on-year, a fraction of what had been expected. A Reuters poll showed a consensus for growth of 6.9 per cent; over at Bloomberg, the consensus was for 7.8 per cent. 

"Bumbler"?

With Taiwan’s economy sluggish this year and the stock market underperforming many regional peers, it’s easy to find Taiwan bears – including the Economist, which raised hackles locally by calling the president a “bumbler” (the unfortunate Chinese translation was “dumb egg”).

It’s not so easy to find Taiwan bulls, so a recent upbeat report from Barclays analysts is unusual. 

Taiwan’s exports fell unexpectedly in October, showing uncertainty despite a string of other recent data which had shown some tepid improvement in the struggling economy.

Weak exports of tech goods – particularly of mobile phones, as HTC continues to struggle – drove exports down 1.9 per cent year on year, after they had improved an impressive 10.4 per cent the prior month. Analysts had been expecting growth of 2 per cent. 

Amid all the talk about Taiwan and China’s improving relationship, not much thought is given to a third party that could lose out on business — Hong Kong, historically the back door for Taiwan’s business dealings with the mainland.

As Schive Chi, head of the Taiwan stock exchange, points out, his own efforts to get companies to list in Taiwan – plus the recent news that Taiwan can begin clearing renminbi itself - will help the island reclaim a slice of Hong Kong’s pie. 

Some more good news for the global economy. After Friday’s fall in US unemployment, another key indicator – albeit a far smaller one – swung in positive territory: Taiwanese exports jumped back into double digit growth in September.

The 10.4 per cent increase in year on year overseas shipments was led by electronics, and follows a 4.2 per cent drop in the previous month. Analysts had been expecting an increase, but only around the 3 per cent range. 

Taiwan’s export orders fell for the sixth straight month in August, albeit at a slower pace than last month. But persistently high inflation prevented the central bank from cutting its benchmark interest rate at its meeting on Thursday.

Taiwan’s export orders – a leading indication of a leading indicator of the global economy – suggest what actual shipments will be in a month or two. Their continued decline is bad news for this export-oriented economy. 

The cost of feeding ghosts has been particularly high this year in Taiwan, following a series of typhoons that hit the island’s agricultural areas and pushed inflation to a four-year high.

The current month is known as Ghost Month and is said to be a time when spirits from the underworld can enter the world of the living. To keep the visiting spirits satisfied, many Taiwanese make offerings of fruit, dried food, incense, pretend money and in some cases, beer and Doritos. So the recent doubling of prices of dragonfruit and papaya, for example, is affecting both the spirit and mortal worlds.