Thursday, November 29, 2012

Maintaining One Percent Growth: The Worst is Yet to Come

Maintaining One Percent Growth:
The Worst is Yet to Come
United Daily News editorial (Taipei, Taiwan, ROC)
A Translation
November 30, 2012

Summary: The year 2012 is coming to an end. We thought we could make a full recovery. But a series of "unforseen eventualities" scotched that. Even maintaining a 1% growth rate is no longer a certainty. But suppose we are successful in maintaining a 1% growth rate? The worst is yet to come. The government cannot afford to let down its guard.

Full Text below:

The year 2012 is coming to an end. We thought we could make a full recovery. But a series of "unforseen eventualities" scotched that. Even maintaining a 1% growth rate is no longer a certainty. But suppose we are successful in maintaining a 1% growth rate? The worst is yet to come. The government cannot afford to let down its guard.

Last week, the Directorate General of Budget, Accounting and Statistics (DGBAS) released its latest economic forecast. It revised its economic growth rate for the year slightly upward, to 1.13%. Barring unforseen eventualities, we should be able to achieve a 1% growth rate. The embarrassing string of nine downward growth rate revisions should end here. More importantly, the DGBAS forecast for next year's economic growth rate may be raised to 3.15%. The main reason is a palpable economic recovery in the US and Mainland China. This and the rapid introduction of new technology products may increase Taiwan's exports and lead to renewed investments. Perhaps the worst is over. But such a conclusion does not explain the struggle to survive that domestic industries are undergoing today. The glowing DGBAS forecasts for this year are far from persuasive.

Consider the unemployment rate. We thought seasonal unemployment for new job seekers had peaked. The October unemployment rate was supposed to drop back down. Instead it went even higher. The magnitude was not large. But it was still an aberration. Workplace business contractions or closures led to drastic increases in unemployment for four straight months. The layoffs at ProMOS Technologies and other companies are cold, hard numbers. They constitute a warning signal. None of these are isolated events. The economy is deteriorating. The end of the year is looming. We hoped to stall for time, but time has run out. More and more companies are being forced to lay off their workforce. Will the unemployment rate increase even more before the year is out? That remains to be seen.

Consider economic growth. The unemployment rate is considered a trailing economic indicator. When the economy bottoms out and begins its recovery, cyclical unemployment improves, but two, three, or even more months later. We are now approaching the new year. Businesses weed out the unfit. Even those who are employed are seeking better jobs. Therefore they are entering and exiting the labor market at a rapid rate. This leads to frictional unemployment. Also, the Executive Yuan's four year employment promotion programs will expire at the end of this year. Many wage subsidies promoting employment will be canceled. Not all impacted jobs will be eliminated. But some will. Therefore unemployment will increase. Unemployment policy is a top priority for any government. Unemployment impacts more than income level and consumption. It undermines social harmony and social stability. Needless to say, the worst is yet to come.

DBGAS officials have belatedly begun describing Taiwan's sluggish and stalled economic growth as "anemic growth." The attempt to maintain a 1% growth rate is merely a pro forma ritual. Substantively it will not offset the inflation rate. Still less will it promote employment, increase consumption, or prosperity. We may be surviving. But we are not thriving. At any time an unforseen eventuality could throw us into recession. World Bank president Robert Zoellick spoke of "anemic growth." He stressed that the course of the world economic recovery would be very slow. That means a solid recovery for Taiwan will take time. Taiwan itself must be strong. It must also confront changes in the international situation.

Making ourselves strong is within our control. The economic momentum upgrade program, Taiwan business reinvestment in Taiwan program, and upcoming free trade zone pilot program, all have merit. But the government must not have only plans and programs. For one, personnel changes mean a lack of follow through. For another, being trapped in one's own framework means a lack of flexibility. The end result could be empty talk. Every year people on Taiwan shout slogans about "growing the economy." But in the end all we have to show for it is anemic growth.

Consider changes in the international situation. This is an even greater challenge. It is also the main reason the DBGAS repeatedly missed its economic forecasts for this year. At the end of last year, the international community was most concerned about the European debt crisis, specifically the debt service peak at the beginning of the year. They thought the global economy might be able to squeak by in 2002. The European debt crisis subsided because everyone anticipated it. But the most promising emerging Asian countries slowed sharply. The benefits from ruling administration changes in economic giants such as the U.S. and Mainland China failed to appear. The anticipated global recovery did not take place. The economic growth rate was adjusted downward, repeatedly. Similar changes may occur in 2013. The visible risks are the U.S. fiscal cliff and the severe debt crisis. But what about the invisible risks? Governments say the worst is over. They are attempting to calm the public. But they must not let their guard down.









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