Monday's announcement by the Council for Economic Planning and Development that its five-color monthly economic monitor had risen to an apparently overheated "yellow-red" in November from the seemingly healthy "green light" in October has sparked exaggerated claims of a "sustainable recovery" for Taiwan's battered economy in some local media.
After eight straight months of depressed "blue" lights since September 2008 and four consecutive months of sluggish "yellow-blue" signals, the CEPD indicator jumped to show a "green" light in October and a torrid "yellow-red" for November.
The first "yellow-red" light in 25 months seems to confirm the claim by President Ma Ying-jeou and other officials in his right-wing Chinese Nationalist Party (Kuomintang) administration earlier this month that the Taiwan economy "has recovered" from the impact of the global financial tsunami in the wake of a forecast by the official Director-General for Budget, Accounting and Statistics for a 6.89 percent fourth quarter surge in real economic growth, compared with the 7.11 percent contraction in the last three months of 2008, and a 4.39 percent in 2010.
After the economy grew by an average 5.2 percent during the last six years of the much maligned former Democratic Progressive Party government, Taiwan's economy has been stagnant under the restored KMT government with only 0.73 percent growth in 2008 and a predicted 2.5 percent contraction this year.
Ma clearly hopes that an economic recovery will bolster the rock bottom public confidence in his leadership and the performance of his KMT administration, whose credibility has collapsed in the wake of the failure to realize his rash campaign promise for average growth rates over six percent.
However, a closer look at the CEPD indicators for the past few months shows little foundation for claims of "economic recovery seen" since last month's "yellow-red" light is mainly a statistical fluke compared with the total dominance of "deep blue" lights last fall.
Moreover, the apparent rebound of the Taiwan economy has been driven mainly by financial speculation, as indicated by a series of seven straight months of overheated yellow-red or red lights in the money supply in M1B terms, six months of similar heat in retail commerce and restaurants, followed in the past four months by the stock market.
Only in the past two months has there been any substantive improvement in substantive economic indicators such as industrial production, machinery imports or manufacturing sales value or manufacturing export customs clearances.
No 'heat' in economy
Indeed, most key substantive indices, such as the industrial production index, real sales value of manufactured prices and machinery imports, have not yet revived to levels reached at the end of 2006 and both the "green" and "yellow red" lights only indicated progress and did not truly reflect either "healthy" and much less "over-heated" economic conditions.
Specifically, the industrial production index showed considerable improvement from 84.9 last November to 110.9 points last month, but this level of industrial activity is anaemic compared to the 157.8-point level reached in November 2007.
Similarly, real manufacturing export value rose to NT$74.7 billion from NT$59.5 billion in November 2008, but pales next to the NT$81.8 billion figure posted in November 2007.
Moreover, the figure of NT$63.9 billion posted for real export customs clearances last month truly marked a sharp jump over NT$52.9 billion in the same month last year, but is scarcely better than the NT$63.8 billion posted in November 2007.
Finally, the level of machinery and equipment imports, which is a key indicator for future investment interest, showed improvement to NT$21.8 billion last month compared to NT$17.3 billion in November 2008, but is far below the NT$25.7 billion imported in November 2007 or the NT$27.7 billion posted in August 2007.
Moreover, what most ordinary people are concerned with is continued regular employment and wages, and Taiwan's economic conditions on both counts remain weak.
Although the DGBAS announced on Dec. 22 that the unemployment rate had improved from 5.96 percent in October to 5.86 percent last month, the expanded (and more realistic) jobless rate continues to be at historic highs with 7.24 percent.
In addition, monthly wages in October had only "recovered" to NT$40,156 from NT$39,600 in October 2008 and NT$38,189 in November 2008, but remain far lower than the NT$44,414 average monthly wage rate for 2007.
Significantly, the private Polaris Research Institute forecast December 10 that the most important indicator of economic health, namely private consumption spending, will rise by only 1.8 percent next year.
Most economists actually are quite aware of the fact that Taiwan's economy has at most ceased its downward spiral of the past year and many worry that the apparent "U" shaped rebound could all too easily turn into a flat lined "L" or even a double-dipped "M" in the coming two years.
The greatest danger now lies in the very substantial possibility that senior government officials will distort the significance of this data for speculative political purposes or as justification for the revival of flawed policies.
Source: Taiwan News Online - Editorial 2009/12/30
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