Asian Crisis Watch: Taiwan’s 3Q GDP Contracts, Government Launches Stimulus

Impact from a strong USD, China’s economic slump and domestic property bubble? 

From Focus Taiwan:

Taiwan's gross domestic product (GDP) recorded a negative year-on-year growth of 1.01 percent in the third quarter of the year, failing to meet a government forecast of 0.1 percent growth, according to government data released Friday.

The Directorate General of Budget, Accounting and Statistics (DGBAS) said that the third-quarter GDP figure was the lowest since the second quarter of 2009, when the country's economy fell 1.24 percent from a year earlier amid a global financial crisis.

The GDP data for the July-September period reflected a poor export performance resulting from weak global demand and worse-than-expected domestic demand, the DGBAS said. 

In August, the DGBAS predicted a year-on-year GDP growth of 0.1 percent for the three-month period.

After seasonal adjustments, the country's third-quarter GDP registered a 0.05 percent quarterly growth.

Exports Down…

In the third quarter, Taiwan's merchandise exports fell 13.86 percent from a year earlier in U.S. dollar terms, with outbound sales of electronics devices, the backbone of the country's exports, down 7.88 percent.

After inflationary adjustments, Taiwan's real goods and services exports in the July-September period dropped 2.85 percent year-on-year, missing an earlier projection of a 0.39 percent increase.

In the three month period, Taiwan's real merchandise and services imports fell 1.47 percent from a year earlier, missing the projected 1.64 percent increase by a wide mark. The DGBAS said the weaker exports and imports dragged down the entire GDP growth by 1.11 percentage points for the third quarter.

Slower outbound sales resulted in lower income, which affected private consumption in the third quarter, the DGBAS said. Private consumption in the third quarter grew only 0.89 percent year-on-year, far short of the estimated 2.94 percent increase, the government agency said.

And so with domestic investments…

It said capital formation, which includes public and private investments, fell 1.25 percent from a year earlier, missing an earlier government forecast of a 0.04 percent increase.

The firming USD relative to Taiwan's Dollar as seen in the US/TWD chart above from investing.com

Taiwan’s annual GDP crumbled during the past 2 Quarters

With exports down, manufacturing have also shrank in 4 months from May to August

Retail sales (year on year) have been in contraction from July to September

Loan growth has been in a cascade.

And with loan growth down, property inflation has turned the corner. The annual housing growth rates and the nominal index exhibits this downshift.

In fear of a bubble, part of the slowdown has been due to property curbs too imposed by the national government, according to Global Property Guide and  by DBS

 

Taiwan’s stock market, as measured by the TWSE, entered the bear market zone last August 2015 (down 25% peak to trough). 

The ‘bad news is good news’ rally which powered the TWSE away from the bear market still shows the index down by 14% from the August bottoms.

And so, Taiwan’s government have  been in a dilemma.

All these market and economic signals had earlier prompted Taiwan’s central bank to cut policy interest rate last September the first since 2011.

And like any conventional pious Keynesian abiding government, the response on the economic contraction has been to use politics: a NT $4 Billion (USD $123 million) stimulus. Political solution to economic problems.

From another Focus Taiwan article

The Cabinet on Friday announced a series of short-term stimulus measures, including subsidies for the purchase of energy-efficient home appliances and for domestic travel, in a bid to boost Taiwan's flagging economy.

The package, which will be effective Nov. 7 to Feb. 29, also includes a subsidy for buyers who replace their second-generation (2G) cell phone with a 4G smartphone.

The measures were announced by Premier Mao Chi-kuo at a press conference, which was attended by Vice Premier Chang San-cheng and other top officials.

It is estimated that the package will cost the government NT$4 billion and add NT$1.54 billion to the gross domestic product (GDP). Money needed for the measures will come from the Cabinet's special reserve fund so Legislative approval is not required.

The measures include a subsidy of NT$2,000 per person for the purchase of air conditioners, refrigerators, television sets or water heaters certified with Grade 1 or Grade 2 energy-efficiency performance.

And political response almost always fixates at the short term.

But if the political fixes fail, and the downturn is sustained, economic contraction will imply of the amplification of financial losses that would have ramifications on the credit channel. And increased credit woes will boomerang back on economic activities. The escalation of the feedback mechanism may lead to insolvencies. And snowballing insolvencies heighten the risks of a crisis.

Will economic contraction be limited  to Taiwan? Or will other nations within the region suffer the same dynamic wherein Taiwan leads the pack? Singapore barely escaped a technical 3Q GDP recession.

Interesting turn of events.