Taiwan jobless rate masks
frail economy By Robert M
MONTREAL - Taiwan's economy
delivered a small shaft of light on Monday when
the June unemployment came in at 4.2%, unchanged
from May and one percentage point better than the
4.3% consensus forecast.
figure, down from the 4.4% rate in June 2011,
however masks that the number of unemployed
persons in Taiwan nevertheless rose in June by
2.4% from May's level, reaching 477,000, perhaps a
better indicator of the present state of the
Export orders fell for
the fourth straight month in June, it was
announced at the weekend, with a 2.6% year-on-year
contraction after a 3% decline in May. Export
orders are interpreted as a leading indicator for
exports over the course of the following three
months. Exports themselves also declined, the
purchasing managers' index (PMI) fell in June and
inflation rose. All the moves in these various
indicators were relatively or at least fairly
small, but they were all unfavorable.
important, these numbers follow on a raft of
statistics over the past three months, not only
from Taiwan but also from other export-dependent
Asian economies, that have increased general fears
that the Asian slowdown, expected during the first
half of the year, has not yet reached its nadir.
If the slowdown continues long into the
second half, then the probability increases that
other developments will restrain still further the
pickup in growth that is still hoped for before
the end of 2012.
The June PMI, compiled by
HSBC/Markit, fell below the neutral level of 50.
The PMI measures the acquisition of goods and
services by purchasing managers. As such, it is a
"leading" economic indicator, that is, it is taken
to predict future economic activity. A PMI greater
than 50 is interpreted as an expectation of
economic expansion; lower than 50, the opposite.
Therefore, June's decline in Taiwan's PMI
to 49.2 from May's 50.5 signals an anticipation of
economic contraction. It especially augurs a
weaker recovery by the end of 2012 than had been
hoped for. Industrial production fell 0.2% in June
year on year, registering the third monthly
decline in a row.
The combination of all
these small but inexorable declines over the
period of a number of months led HSBC's Donna Kwok
to note that not only is momentum "starting to
soften noticeably" but also "the impact of a
continued decline in local stock indices upon
domestic demand is rising".
are reflecting the negative mood - the benchmark
Taiwan Stock Exchange Composite (TSEC) weighted
index is down about 13% since March 3. If
uncertainty or declines in stock prices continue
long enough, then consumers tend to be more
conservative, saving their money instead of
spending it. That household conservatism leads to
decreased domestic demand, therefore in turn to
declines in production for the home market.
The index traded at just above 7,000
around midday on Monday, testing a long-term
support level. Most short-term technical
indicators are negative. The most important
medium-term support under the current level is at
6,860, while the most important medium-term
resistance to the upside is at 7,280.
Taiwan's exports to mainland China,
including Hong Kong, fell 1.6% in June year on
year, while export orders for that region fell
3.6%. This decline brings into doubt the degree to
which the mainland's announcement a month ago of
up to $95 billion in credit to Taiwanese
investments in business on the mainland will
really help Taiwan's own economy. The move was
part of a limited domestic economic stimulus
program on the mainland, targeting infrastructure
projects and consumer staples.
first half of 2012, Taiwan's export orders overall
contracted by 0.9%, falling nearly US$2 billion
from the equivalent period in 2011. In a
potentially worrisome trend, orders are falling
not only from developed market economies but also
from emerging markets, particularly the members of
the 10-member Association of Southeast Asian
Nations, plus Japan.
economies, in contrast to the chronic difficulties
of most of the 34 members of the Organization for
Economic Cooperation and Development, have until
now provided some growth stability for the region
and for the world, and therefore also provided
regular demand for Taiwan's exports.
order to gauge the magnitude of this danger, it
will be necessary to watch more closely the
statistics coming out of such countries as
Indonesia and Malaysia, for which Asian export
destinations are generally still more important
than those elsewhere.
this, Moody's economist Katrina Eli wrote that "a
sustained recovery in the US and/or European
markets" is what is needed for Taiwanese exports
"to really be dragged out of the woods", as quoted
by the Financial Times.
themselves fell 3.2% in June 2012 year on year,
although a still sharper drop in imports improved
the trade balance in June to $2.6 billion.
Electronics and machinery exports grew while basic
metals and machinery exports declined. Exports to
the US fell 14% year on year in June, while those
to Europe declined by 11.9%. The Taiwanese economy
will still be "in the woods" for a while to come.
Dr Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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