as the indices for wholesale, import and export prices all saw much larger rises in the first three quarters. Wage-rises in both manufacturing and service sectors were 8.12 per cent, the lowest in eight years, in the first half. Manufacturing wages grew an annual 7.03 per cent. However, productivity has grown only 3.3 per cent in the period, leading to effective increase of 4.43 per cent in labour costs. The DGBAS fears that Taiwan is continuing to lose its competitive edge to China and other southeast Asian countries.
Money Supply
to
21. Growth in broad money supply (M2) slowed in the second and third quarters, from an annual 17 per cent to 14-15 per cent. Unexpectedly good inflation figures in late summer has allowed the ultra-cautious Central Bank steadily
ease credit in successive moves, finally trimming the discount rate in early November from 5.626 per cent to 5.5 per cent, the first change in more than a year.
Fiscal
22. With revenue showing no increase and outstanding debt approaching its statutory upper limit, the government has had to cut spending. Total outstanding bonds issued as a proportion of GNP is set to reach 11 per cent this fiscal year (up to June 1994), from 8.5 per cent last fiscal year. Although it is trifling compared to levels in Japan, Singapore and elsewhere, it is regarded as worryingly high when set against 20 years of budget surpluses and minimal public debt issues up to 1990. More important is the negative growth in government revenue, which is largely a result of falling income from public and private business tax, and lower revenue from government enterprises.
Balance of Payments small surplus expected for the year
24. For the first three quarters, Taiwan saw a minute overall balance of payments surplus of just 6 million US dollars. The current account surplus was a healthy 4.7 billion, though this was down from 5.5 billion in the same period of 1992. On the current account, burgeoning overseas travel expenditure is eating rapidly into the visible trade surplus, while the capital account registers substantial investment capital outflow, and heavy advance payments for military hardware. A slowing of imports in the second half should improve the trade balance, while tighter credit on the Chinese mainland, along with eased restrictions on foreign investment in Taiwan's stockmarket, should result in a small overall surplus for the year.
25. Foreign exchange reserves held (in various currencies) by the Central Bank, excluding gold, were worth 84.9 billion US dollars equivalent at the end of the third quarter, having peaked in May at 85.6 billion. Gold reserves held by the Bank stood at 13.54 million troy ounces.
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Industrial Production
26. The overall industrial production index grew at 5 per cent in the third quarter, up from 1.6 per cent and 2.5 per cent in the previous two respectively. This may be linked to depreciation in the currency, which has benefited some manufacturers in the domestic market, where imported goods have in some cases begun to look prohibitively expensive (Japanese electronics, white goods). Agriculture is expected to grow 1.6 per cent for the year, industry 4.5 per cent,
per cent, and services 8
and services 8 per cent. Heavy industry grew 6.9 per cent in the first nine months, while light industry grew a negative 5.29 per cent.
Manufacturing
27.
Gross domestic product (GDP) of manufacturing industry grew only 1.8 per cent in the first half, and its share of overall GDP fell to 32 per cent, compared to 33 per cent in 1992. Three years ago, the government was boasting about the impressive expansion of the services sector, which showed that Taiwan's economy was maturing. Now, officials worry that the economy is de-industrialising too fast,
too
soon. Time will tell if the Economic Stimulus Plan succeeds in stopping the rot.
Privatisation
28. Two companies, Taiwan Machinery Manufacturing, and the building contractor BES Engineering, were supposed to have become private by the end of the year, but there has been no progress. Tentative plans have been drawn up for the breakup and sale of the oil monopoly Chinese Petroleum Corp. (CPC), by the year 2000. According to the latest schedule (numerous ones have gone awry), China Petrochemical Development, a CPC offshoot, is to go private in this fiscal year, China Steel sometime in 1995, and China Shipbuilding in 1997.
Outlook - A slight pickup in 1994
29. Growth in the next six months will depend on several major variables: sustained high growth in mainland China without overheating, recovery in the US and European economies, and steady progress on large investments at home. A worst-case scenario would be for China to slam the brakes on again and try to cut its trade deficit by restricting imports, the US recovery to falter, continental European economies to remain in their slump, and large public and private investment projects in Taiwan to go on suffering delays. This set of conditions might cut Taiwan's growth rate to about 5.9 per cent for 1993, and perhaps as low as 5.5 per cent in the first half of 1994. If all these factors go the other way, we would expect to see something closer to 7 per cent.
7
Forecasts for 1994
to rise 8 per cent, imports It expects growth in fixed
30. The CIER has forecast exports slightly faster at 8.03 per cent. investment to remain sluggish at 9.5 per cent, of which government investment should grow 11.4 per cent, and state firms less than one per cent. Various forecasts for private consumption range from 7 to 7.5 per cent, a similar rate to 1993. Government consumption should grow a nominal 1.2 per cent, which would be negative growth in real terms. Inflation is generally expected to be higher than in 1993.
ANNEX 1.
ECONOMIC DATA
YEAR % GNP
GROWTH
GNP (US$bn)
GNP
per Cap
TRADE SURPLUS
CPI
WPI
GROWTH
GROWTH
($US)
(US$bn)
(%)
(%)
1989
7.33
150.3
7,512
11.5
4.40
-0.37
1990
5.02
160.9
7,954
8.6
4.13
-0.61
1991
7.24
179.8
8,788
8.9
3.62
0.16
1992
6.02
210.7
10, 202
5.1
4.46
-3.67
1993 (f) 6.03
220.3
10,570
4.1
2.87
2.60
Q1
6.29
55.2
2,658
0.6
3.33
1.33
Q2
6.15
54.0
2,594
0.7
3.05
2.89
Q3
5.78
54.9
2,632
1.1
2.43
3.72
Q4(f) 5.92
56.2
2,686
1.7
2.69
2.68
1994(f) 6.20
236.6
11,237
4.6
3.67
1.22
Q1 (f) 6.17
58.1
2,769
0.8
3.56
1.93
Q2(f)
5.99
57.1
2,717
1.0
3.41
1.05
Q3 (f)
6.36
60.1
2,851
1.1
4.02
0.92
Q4(f)
6.28
61.3
2,900
1.7
3.68
0.97
Source: Directorate General of Budget, Accounting and Statistics
(DGBAS) Executive Yuan.
BTCO Taipei
December 1993
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