TAICHUNG (Taiwan News) — The 2020s have been rough so far. The hopes for a second “roaring 20s” post-pandemic like the one a century ago have not materialized (at least not yet), stymied by war in Ukraine, inflation and a sense that celebratory partying is not in the public’s psyche at the moment.
Compared to most countries around the world, Taiwan has weathered the storm fairly well. The economy continued to grow through the pandemic, inflation has not taken off to the same degree as in many other countries, the pandemic itself was held at bay fairly well until a large percentage of the population was vaccinated and prepared for the milder Omicron variant and Taiwan’s democracy does not appear under threat, even if one is not happy with the results.
Last year was a bit bumpy economically, with the stock market losing more than 20% of its value and exports, after years of rising, taking a big hit in November. Both figures are described as the worst since 2009.
The NT$ depreciated by around 10%, the biggest drop since 1997, and inflation spiked over the summer, and remains high in the food sector. Though economic growth remained strong last year (4.1% in the third quarter on a yearly basis), forecasters have been cutting back on their GDP outlook for 2023, with estimates now between 1.5% and 3.4% growth.
Wages grew last year, but after inflation, were down 0.07% as of November, so essentially flat. The reality is probably a bit worse, as Taiwan’s inflation numbers are artificially low.
A so-so year
Into the new year, things are looking bad for exporters, at least in the first half of the year, as business dries up overseas and pandemic chaos reigns in China. However, for the average person who does not own an export business or a lot of stock, it’s likely to be a so-so year.
Unemployment is low at 3.61% and has been dropping for the last few months and the big tech exporters are not likely to shed too many high-paid jobs due to a shortage of skilled workers. A majority of employers plan to raise worker’s pay next year, the minimum wage was just adjusted up to NT$26,400 (US$859.05), and most estimates on inflation are relatively mild at around 2%.
With the pandemic easing, growth in the economically crucial foreign community will likely return, especially people from Southeast Asia. Minimum wage hikes for foreign caregivers is welcome, as is opening up a path (albeit still limited) to permanent residency, which Taiwan sorely needs more of.
Also welcome are steps to implement a three-day orientation to educate new arrivals who will be caregivers and working in factories about the local laws, personal rights, and streamlining applications and paperwork. Along with an upgraded “1990” hotline in seven languages, this will hopefully mean greater safety, stability, and fairness in the coming year for foreign workers and, in the end, employers as well.
Agriculture and fishing took big hits last year with China cutting off their market, but already much of it has been redirected to other markets, which will likely continue to strengthen this year. That’s good news for Taiwan, China’s capability for economic warfare is diminishing and Taiwan’s agricultural exports are diversifying, better protecting exporters against shocks from overexposure to one large single market, though big risks remain in some markets.
For the average person, the good news is that domestic economic demand has been strong, and is expected to continue to be this year as key industries with high employment needs like tourism open back up. The drop in GDP estimates for the coming year is mostly a problem for export company owners, not you and me, service industries, and the small neighborhood businesses that drive much of Taiwan’s employment.
Not all roses
Of course, in all likelihood, some export companies, especially those outside of the high-tech world, will lay off some workers as the export pinch is felt. However, as long as domestic demand remains fairly strong, those job losses may well be offset.
Food, energy, and housing costs will likely remain a problem into the new year. The good news, however, is that Taiwan is fairly insulated from the food inflation caused by the war in Ukraine, and being more of a rice culture, relatively less reliant on the wheat and corn markets that Ukraine is so critical to.
If the news is good and the Ukraine war ends in the next few months, that could mean the revival of Ukrainian agriculture, which would ease some pressure on corn and wheat futures markets. Cannot assume that, however.
Energy is also hard to predict, but it appears the supply and demand chains are shifting, with Russian oil and gas going more to countries like China and India, opening up supplies from other sources for countries that are imposing sanctions on Russia. That is almost certainly why U.S. President Joe Biden’s criticisms of India’s energy imports from Russia have been relatively muted, as he knows it is helping keep prices down.
Infrastructure for gas imports in some countries, most notably in Europe, will take time to build and will keep the pressure high on prices as supply from countries other than Russia still will not be able to physically reach demand. Russia may, or may not, continue supplying to Europe.
Taiwanese are, however, partially insulated from energy prices. The price at the pump is determined by a system that smooths out dramatic spikes and drops over time, and the state-owned Taiwan Power Company (Taipower) is haemorrhaging cash on high import costs, but not raising consumer rates.
The government, however, is well-placed to handle it with your tax dollars and huge foreign reserves. Last year they collected a tax surplus, part of which is being diverted to Taipower.
Housing and rents are not likely to improve much this year, the problem is systemic and governments have tended to take a very conservative approach to fixing it. It’s a problem when politicians owning property, which is almost all of them, approach this problem.
Or rather they do not: They have got theirs already, and apparently young people will just have to live with that.
The one big worry
Of course, unexpected things may occur, like the war in Ukraine last year. Here in Taiwan, the one big worry is China.
China’s mega real estate companies are teetering at the edge of systemic collapse, and real estate and construction represents between 20-30% of economic output. All the companies that service that industry are also at risk, as is the personal savings of a large number of people who may never see the pre-sold housing units they bought completed.
Then there is the problem of local governments, which get much of their income from real estate land usage rights. Local governments are already heavily in debt, and they are feeling the strain.
All of this could spread to the banking system, and from there cause serious economic chaos. We would feel it here, and not just in the potential loss of a lot of Taiwanese investments in China.
While much of what Taiwan exports to China is components for assembly and eventual re-export to other markets, there are still many exports and services targeted at the Chinese domestic market. Though Taiwan has been making moves to diversify away from China, there could still be some very real economic pain felt here, and indeed worldwide, further depressing demand for Taiwan exports overseas.
Depending on the analyst, predictions on whether the Chinese government’s efforts to contain the damage will succeed in the short term vary widely. Most, however, agree that China’s statist and developmentalist economy has some serious systemic problems that the Chinese Communist Party (CCP) has not tackled, and does not look likely to.
Those problems compound over time. Whether China’s economy muddles its way through in the near term or not, serious economic and political reforms are necessary, but taking those steps runs very counter to the CCP’s thinking and Chairman Xi Jinping’s (習近平) desire to concentrate power, never mind the CCP princelings and officials who benefit enormously from the current system.
Having an unstable giant with the world’s largest military next door, and a stated intention to annex your country, is not a comfortable position to be in. Let’s hope they muddle through.