Taiwan is set to reveal how much the recession has undermined the economy this year, with the deteriorating economic situation likely to become a key campaign issue in upcoming elections.
(Bloomberg) — Taiwan is set to reveal how much the recession has undermined the economy this year, with the deteriorating economic situation likely to become a key campaign issue in upcoming elections.
President Tsai Ing-wen’s government may have to cut its growth forecast for this year for a second time when it announces Friday whether the contraction in first quarter gross domestic product data was worse than initially reported. In February her government predicted the economy would expand 2.1% this year, but since then exports have continued to slump.
The government already reported the economy had fallen into recession, with the preliminary data release last month showing the economy in the January-to-March period shrank 3% from a year earlier — the worst contraction since the global financial crisis.
The island is facing critical elections in January, with the president’s ruling Democratic Progressive Party facing a tough re-election fight as unhappiness grows due to rising inflation and interest rates as well as the slowing economy.
The election result will affect the course of relations between the US, China and Taiwan for years to to come, with the Kuomintang opposition party favoring closer ties with Beijing.
“The government could still work on containing inflation to gain public approval” ahead of the election, said Gordon Sun, a director at the think-tank Taiwan Institute of Economic Research.
“Taiwan’s inflation is lower relative to other Asian countries, but the general public do not compare themselves to others, they compare with past experiences,” he said, calling for “proactive” policies to reduce inflation, which hasn’t been below 2% since mid-2021.
Read More: Taiwan’s Economy Falls Into Recession as Global Demand Dries Up
Friday’s data release by the government’s statistics department includes a forecast for the consumer price index for this year. That could prove to be a pivotal battleground in winning votes: Many expect it to remain stubbornly high.
A client survey by Cathay Financial Holdings Co Ltd found 87% of respondents thought inflation would exceed 2% this year, according to results published Monday.
Strong Consumption
Private consumption in Taiwan grew 6.6% in the first three months of 2023, gains that were largely offset by an almost 4.2% drop in investments. As a result, domestic demand wasn’t able to counteract the 10.9% drop in exports.
Weak overseas demand for Taiwanese semiconductors pushed export orders down for an eighth consecutive month in April, undermining growth in the trade-dependent economy, while uncomfortably high inflation led the central bank to raise its key interest rate for the fifth consecutive time in March.
The higher borrowing costs also risk piling pressure on Taiwan’s homebuilders, as well as homebuyers and consumers, who have been hit by both higher mortgage costs and higher prices for everyday goods.
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