Wednesday, February 18, 2009

Recession in Taiwan: the Battered Tech-Based Export Economy

The frozen economy needs CTRL + ALT + DEL.

Tired of stimulus-a-palooza here, I look back at the "Old Country" and see an even worse picture there. The numbers are bad as reported by the Economist. Here are some of them:
Which economy has been hit hardest by the global slump? In its back pages and on its website The Economist tracks 55 countries each week. Based on industrial production, Taiwan has suffered much the biggest shock. Output fell by 32% in the 12 months to December; in the fourth quarter it plunged at an annual rate of 62%.

...Taiwan is one of the world’s most export-dependent economies, making many high-tech gadgets for Western consumers, so it has been battered by the slump in global demand. Exports plunged by a record 44% in the year to January. The slide in exports has been exacerbated by a drying up of trade credit. This partly explains why imports also fell by 57% over the period.

...The island’s electronics industry is enduring its worst-ever slump. Cheng Cheng-mount, a Taipei-based economist with Citibank, points out that Taiwan’s mainstay exports, such as flat-screen monitors and semiconductors, were in oversupply even before the global financial crisis. Now, he estimates, Taiwan Semiconductor Manufacturing Company, the world’s biggest contract chipmaker, is running at around 35% of capacity.

Falling exports have, in turn, squeezed domestic spending. Unemployment rose to a six-year high of 5% in December, and the true picture may be far bleaker. Taiwanese companies tend to wait until after the lunar new year holiday before swinging the axe. Average wages have also fallen by 5% in real terms over the past year. Many companies are ordering employees to take unpaid leave. The volume of retail sales slumped by 11% in the year to December.

Even before the financial crisis, household spending had seen the weakest growth rate among the East Asian tigers.

You know that Taiwan is heavily dependent on import-export, particularly in electronics. You'll remember that the Taiwanese government recently had to bail out computer chip manufacturers.

How bad is the downturn? Backing up the Economist, the Taiwanese government says that this is the worst slump since it started keeping quarterly records in 1961.

Add also a record fall in the Taiwanese GDP; the numbers were released just today. The latest prediction: the Taiwanese economy will shrink by 3% this year. Previous hopes had been for a 2% growth this year. Not gonna happen. And it's time to use the R-word: a recession is defined as 2 consecutive quarters of contraction.

Oh, and one more thing: the Taiwan dollar has hit a five-year low against the US dollar. The exchange is $1 US = $34.62 Taiwan. (This is actually not the most that I've seen. When I was in Taiwan right after the bubble popped, the ratio was something like $1 US = $36 Taiwan.) Then again, the Taiwan dollar could very likely drop some more.

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