The 2008 Economy: Awaiting a Leader
United Daily News editorial (Taipei, Taiwan, ROC)
January 7, 2008
Wave goodbye to 2007. Look forward to 2008. Last year the world economy rode a roller coaster. We screamed all the way. Will we be able to get off and catch our breath this year? At the moment it looks as if the economic anomaly of 2007 is over and we are back on track. But Taiwan's economy still has a real obstacle to hurdle, both internally and externally. Its future leadership and tone of government have not been set. Fasten your seatbelts. It's going to be a bumpy ride.
The World Bank, the International Monetary Fund, statisticians for the major economies, and independent researchers in academia all predict slower global economic growth in 2008. Major reasons include: the effects of the subprime mortgage crisis in the United States are continuing to make themselves felt, oil prices remain high, supply and demand for raw materials remains unresolved, and preventing recession has been given priority over preventing inflation. The most important reason however is experts sharply disagree about whether the US economy is in recession, and whether a soft landing of mainland China's economy is possible. Among the many variables are movements in the dollar and RMB exchange rate and changes in consumer demand, and their impact on the major economies' economic policies. The government brims with confidence, but the public is wracked by anxiety. The efficacy of their policies can be seen by the impact of economic globalization on their economies.
Making economic forecasts is a difficult and thankless task. But it must be done. A clear economic forecast is an important tool governments, organizations, and businesses use to allocate limited resources. Not only to make up obvious shortfalls, but also to achieve ones' goals and visions. Unfortunately, real historical changes are often the result of totally unexpected events. This is the main reason economic forecasts must often undergo major revisions. For example, the Asian financial crisis triggered heavy criticism of the Thai Baht. The 9-11 terrorist attack and the SARS crisis derailed the economy. Last year's subprime mortgage crisis in the United States was initially presumed to be a regional crisis. Who knew it would turn into a financial storm? Not only did it rain on last year's global economic outlook, it is casting a dark shadow over this year's as well.
Taiwan's economic outlook for 2008 should be viewed from two indeterminate perspectives. The first is that based on "known unknowns," it will continue down the path taken in 2007. Obviously, if we look exclusively at outside factors, the evolution of the subprime mortgage crisis in the United States is the number one factor. The subprime mortgage crisis has caused major losses on Wall Street. But even more frightening is the loss of confidence in financial transactions and in the regulatory capabilities of major European central banks. Prior to the restoration of order in the financial market, flexible business management is essential. Mergers and acquisitions must be subjected to controls. It will be difficult for the economy to revive. The once high profile process of globalization has changed into something else. Oil prices are not expected to retreat any time soon. Central bank monetary policy is caught between preventing recession and preventing inflation. These indeterminate factors mean a bumpy ride for the global economy, and enormous uncertainty in Taiwan's increasing external demand.
Internally, Taiwan has many difficult problems left over from 2007, and no short-term answers. It is often said that the stock market is a showcase for the economy. From another perspective, the stock market is the referee of economic performance. According to statistics, Taiwan's stock market grew 8.7 percent last year. It ranked next to last among Asian stock markets. The foreign investor overbought index has reached its lowest point in recent years. The Directorate General of Budget, Accounting and Statistics put last year's economic growth rate at 5.5 percent. The Executive Yuan used its "Benefit a Week Program" to artificially raise the TAIEX to the 10,000 point mark. The stock market has given the government a sharp slap in the face. What's worse, the TAIEX rose 100 points at the end of last year. This year the market often opened up but closed down, fortelling a year of unrest.
Actually, earnings from foreign trade and publicly traded companies were high last year. There was no reason for a bear market. But the presidential election, the restructuring of the Legislative Yuan and the reorganization of financial and economic policies introduced considerable uncertainty. These include cross-strait transportation links, loosening of limits on investment on the Chinese mainland, tax reform, and financial reform. All could lead to dramatically different consequences. These are all political "known unknowns" that affect the economy, and that undermine investor confidence.
2008 has begun. Who the nation's leaders will be remains unknown. Their cabinets have not been chosen. The political arena remains chaotic. No one has set a tone. It is the "unknown unknowns" that will determine the strategic picture.
2008.01.07 03:13 am