The Dismal Science Got a Bit Cheerier at AmCham’s Economic Outlook Event

While economics might be called “the dismal science,” on November 17 AmCham Taipei members were treated to a lively presentation and discussion by a decidedly charming economist – Chen Shin-hui, assistant research fellow at the Center for Economic Forecasting, part of the Chung-Hua Institution for Economic Research (CIER). Chen’s major role at CIER is to compile the monthly Purchasing Managers’ Index (PMI), a monthly survey of Taiwan’s major industries that is widely viewed as a leading indicator of the economic health of the manufacturing sector.

From left to right: AmCham Capital Markets Committee Co-Chair Chung-Ping Liu, Executive Vice President, Fubon Financial Holding Co., Ltd.; Speaker Shin-Hui Chen; and Governor & AmCham HR Committee Co-Chair Seraphim Ma, Senior Partner, Baker & McKenzie

In her presentation entitled, “Taiwan’s Economic Situation and Outlook,” she was therefore able to offer unparalleled insights into Taiwan’s economy.

Chen started with an overview of the global economy and how Taiwan has benefited from the recent upturn in growth and trade. The global economy is looking to post higher growth rates in 2017 in the vicinity of 3.6% on the strength of modest growth in the United States (2.17%), the Eurozone (2.22%), and China (6.8%), according to the Global Insights website, as reported in late October. Chen noted that Global Insights remains particularly bullish on anticipated tax cuts and business growth in the United States. The OECD, meanwhile, though more cautious, likewise sees broad-based recovery throughout the economies it tracks.

This global recovery has resulted in a 20-month long expansion in Taiwan’s exports, up 13% in year-to-date annual comparisons as of October, according to the Bureau of Foreign Trade under the Ministry of Economic Affairs (MOEA).

The PMI tracked by Chen reflects this upward trend, coming in at 57.7, although it fell a slight 1.7% from September’s 58.7. Anything over 50 is considered expansion. Chen noted that both New Export Orders and Industrial Production Indexes also recorded healthy scores of 58.6 and 57.9, respectively, although both were down slightly from the previous month. What’s more, this expansion was seen in all of Taiwan’s major industrial sectors.

However, Chen reminded attendees that despite these rosy numbers, Taiwan’s economy remains fragile and so far incapable of meeting its potential.

She noted that despite the massive contraction Taiwan experienced in the recession of 2009, it failed to diversify its trade partners to reduce its overreliance on cross-Strait trade, resulting in a downturn in exports whenever China’s economy slows, and leaving it vulnerable to trade declines as China’s domestic supply chain upgrades and gains competitiveness on Taiwanese manufacturers. Taiwan experienced this situation in 2015-2016 when it saw 17 months of export contractions.

Even more significantly, Taiwan’s non-export sectors remain underdeveloped and sluggish. More than two-thirds of Taiwan’s economy is comprised of service-related industries, but more than two-thirds of the economic growth results from its exports, pointing to weakness in the service economy and an overreliance on trade.

Taiwan’s Non-Manufacturing Index (NMI) which tracks the service economy, is likewise up, to 53.6, with growth seen in several major components, including Finance and Insurance, Transportation and Storage, and Education. But costs have also risen this year by 2 percentage points, indicating upward pressure, causing a decline in activity in several categories, including Construction and Real Estate. Cross-Strait tensions are also playing a role, with Chinese tourism down significantly. Chen noted that while many have observed that the drop in Chinese tourism numbers has been offset by visitors from other countries, the Chinese tourists are particularly lucrative for the Taiwan market, as they tend to stay longer and spend more.

She also noted that recent legislation, particularly the newly amended Labor Standards Act, is also impacting costs across the economy in both manufacturing and service industries.

Chen’s diagnosis of the problems facing Taiwan came complete with some suggestions for how to improve its prospects. Liberalizing the financial sector was one, as well as encouraging the government to consult more with industry on how to improve conditions.

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