Is Rate Cut the Answer to Taiwan’s Contracting Economy?
Taiwan’s central bank cut interest rates to a record low after the economy shrank an unprecedented 8.36 percent in the fourth quarter as exports and business investment tumbled.
Governor Perng Fai-nan and his board pared the discount rate on ten-day loans to banks to 1.25 percent from 1.5 percent in Taipei on 18 February, the seventh reduction since late September. The decline in gross domestic product from a year earlier was the biggest since official records began in 1952, and exceeded the 6.82 percent drop forecast in a Bloomberg survey of economists.
Taiwan entered its first recession since the technology bubble burst in 2001 as the global economic slump reduced demand for Taiwan Semiconductor Manufacturing computer chips and Quanta Computer laptops. The central bank will pump money into the economy if Taiwan’s lenders fail to provide more credit to businesses, Perng said.
“The steep contraction of the economy needs much stronger measures than cutting interest rates,” said Chuang Rehong, head of economic research at Sinopac Securities in Taipei. “Lowering borrowing costs won’t provide an immediate boost to the economy since the banks have been cautious in giving out credit.”
Taiwan’s economy will shrink 2.97 percent this year, the government forecast on 18 February, reversing its November estimate of 2.12 percent growth.
Relief Efforts The central bank alone can’t stimulate the economy, Perng said, adding the government is doing its part. “The government is implementing expansionary fiscal policies while the central bank is pursuing loose monetary policy.”
President Ma Ying-jeou’s administration plans stimulus spending of NT$858.5 billion ($25 billion) over four years, equivalent to about 6 percent of GDP, on infrastructure projects, consumer grants and tax cuts. It handed out NT$82.9 billion of shopping vouchers last month, which the statistics bureau forecasts added 0.66 percentage points to GDP.
Pressure is increasing on Asia’s policy makers to step up relief efforts as the region’s export-dependent economies falter.
Japan’s economy contracted an annualised 12.7 percent last quarter, the biggest drop since 1974. The Bank of Japan will detail its plan of buying corporate bonds and may prolong lending programs in place to avert a shortage of credit from deepening the worst postwar recession, economists said. Singapore’s GDP declined by a record 16.9 percent annualised rate in the fourth quarter. The government is cutting corporate taxes, giving cash grants to companies to retain workers and plans to spend S$20.5 billion ($13.4 billion) to help businesses and citizens.
Currency Declines Taiwan’s rate decision and GDP report were released after the close of trading on the island’s stock exchange. The Taiex stock index, which tumbled 46 percent in 2008, rose 0.2 percent to 4,498.37 on 18 February. Taiwan’s currency dropped to NT424.682, the lowest level in more than five years against the U.S. dollar.
“This is going to go on for some time, not just for Taiwan but for Asian currencies in general,” said Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Calyon, the investment-banking unit of French bank Credit Agricole SA. “There’s a sense that the economic numbers are going to get worse in the next few months.”
Exports, which are equivalent to 70 percent of GDP, will decline 20.1 percent in 2009 and business investment will tumble more than 28 percent, it predicted. The economy won’t return to growth until the fourth quarter, the government added.
‘Most Exposed’ “Taiwan is among the most exposed economies in Asia,” said Frederic Neumann, a Hong Kong-based economist at HSBC Global Research. “The island’s economy is unlikely to see a significant rebound until consumers in the West decide to go out and spend again.”
The island, which has been ruled separately from China since 1949 and is home to 23 million people, is increasingly reliant on trade with the mainland to drive its economy. China and Hong Kong combined bought about 41 percent of its exports in 2007, up from 26.6 percent in 2001.
Electronics makers send parts to China that are re-exported as finished computers, televisions and mobile phones to consumers in the U.S. and Europe.
In response to the slump, Taiwan’s companies are cutting capital spending, closing factories and firing employees. Retail sales fell 9.8 percent in December, the largest drop since records began in 1999. The unemployment rate rose to 5.01 percent in December, the highest since 2003, amidst job cuts by companies including Hon Hai Precision Industry, which makes iPhones for Apple.
Quanta Computer, the world’s biggest maker of notebook computers, said this week shipments will decline more than 30 percent this quarter. Taiwan Semi in December forecast its first quarterly loss since 1990 as customers including Texas Instruments reduce orders.
With the measures being undertaken by the government and other institutions, is Taiwan set to bounce back in the near future?
Governor Perng Fai-nan and his board pared the discount rate on ten-day loans to banks to 1.25 percent from 1.5 percent in Taipei on 18 February, the seventh reduction since late September. The decline in gross domestic product from a year earlier was the biggest since official records began in 1952, and exceeded the 6.82 percent drop forecast in a Bloomberg survey of economists.
Taiwan entered its first recession since the technology bubble burst in 2001 as the global economic slump reduced demand for Taiwan Semiconductor Manufacturing computer chips and Quanta Computer laptops. The central bank will pump money into the economy if Taiwan’s lenders fail to provide more credit to businesses, Perng said.
“The steep contraction of the economy needs much stronger measures than cutting interest rates,” said Chuang Rehong, head of economic research at Sinopac Securities in Taipei. “Lowering borrowing costs won’t provide an immediate boost to the economy since the banks have been cautious in giving out credit.”
Taiwan’s economy will shrink 2.97 percent this year, the government forecast on 18 February, reversing its November estimate of 2.12 percent growth.
Relief Efforts The central bank alone can’t stimulate the economy, Perng said, adding the government is doing its part. “The government is implementing expansionary fiscal policies while the central bank is pursuing loose monetary policy.”
President Ma Ying-jeou’s administration plans stimulus spending of NT$858.5 billion ($25 billion) over four years, equivalent to about 6 percent of GDP, on infrastructure projects, consumer grants and tax cuts. It handed out NT$82.9 billion of shopping vouchers last month, which the statistics bureau forecasts added 0.66 percentage points to GDP.
Pressure is increasing on Asia’s policy makers to step up relief efforts as the region’s export-dependent economies falter.
Japan’s economy contracted an annualised 12.7 percent last quarter, the biggest drop since 1974. The Bank of Japan will detail its plan of buying corporate bonds and may prolong lending programs in place to avert a shortage of credit from deepening the worst postwar recession, economists said. Singapore’s GDP declined by a record 16.9 percent annualised rate in the fourth quarter. The government is cutting corporate taxes, giving cash grants to companies to retain workers and plans to spend S$20.5 billion ($13.4 billion) to help businesses and citizens.
Currency Declines Taiwan’s rate decision and GDP report were released after the close of trading on the island’s stock exchange. The Taiex stock index, which tumbled 46 percent in 2008, rose 0.2 percent to 4,498.37 on 18 February. Taiwan’s currency dropped to NT424.682, the lowest level in more than five years against the U.S. dollar.
“This is going to go on for some time, not just for Taiwan but for Asian currencies in general,” said Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Calyon, the investment-banking unit of French bank Credit Agricole SA. “There’s a sense that the economic numbers are going to get worse in the next few months.”
Exports, which are equivalent to 70 percent of GDP, will decline 20.1 percent in 2009 and business investment will tumble more than 28 percent, it predicted. The economy won’t return to growth until the fourth quarter, the government added.
‘Most Exposed’ “Taiwan is among the most exposed economies in Asia,” said Frederic Neumann, a Hong Kong-based economist at HSBC Global Research. “The island’s economy is unlikely to see a significant rebound until consumers in the West decide to go out and spend again.”
The island, which has been ruled separately from China since 1949 and is home to 23 million people, is increasingly reliant on trade with the mainland to drive its economy. China and Hong Kong combined bought about 41 percent of its exports in 2007, up from 26.6 percent in 2001.
Electronics makers send parts to China that are re-exported as finished computers, televisions and mobile phones to consumers in the U.S. and Europe.
In response to the slump, Taiwan’s companies are cutting capital spending, closing factories and firing employees. Retail sales fell 9.8 percent in December, the largest drop since records began in 1999. The unemployment rate rose to 5.01 percent in December, the highest since 2003, amidst job cuts by companies including Hon Hai Precision Industry, which makes iPhones for Apple.
Quanta Computer, the world’s biggest maker of notebook computers, said this week shipments will decline more than 30 percent this quarter. Taiwan Semi in December forecast its first quarterly loss since 1990 as customers including Texas Instruments reduce orders.
With the measures being undertaken by the government and other institutions, is Taiwan set to bounce back in the near future?
posted by Charltonmedia.com @ 6:21 PM
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