MONTREAL - Taiwan, still counting its dead more than a week after being swept
by Typhoon Morakot, may have escaped economic loss on a scale that matches what
is considered the fourth-worst such event in the past 18 years.
The devastation killed at least 100 people and possibly several times that when
the final count comes in, and agricultural losses are severe.
Yet the physical plant of the all-important technology sector emerged unscathed
and may even have profited from the weather, as the regions where it is located
had been suffering from drought all summer and needed the rain to refill
reservoirs on which it draws for its water-intensive chipmaking and other
industrial processes.
The steel and construction sectors perversely rallied as investors
anticipated increased demand for reconstruction in the wake of the wide
physical destruction, estimated at US$900 million. Consolidation of gains in
these sectors contributed to a general pullback of stocks on Monday and Tuesday
this week.
Farming losses that drive up costs of foodstuffs in the near term will fuel
consumer price inflation. The tourism industry has also suffered and will
continue to do so until tourist facilities are repaired at an estimated cost of
$25 million.
Liang Kuo-yuan, president of the Polaris Research Institute in Taipei,
estimated that the domestic economy would still take a hit of about 0.5% in the
third quarter as a result of the typhoon.
There is, however, the likelihood that both the government and the Asian
Development Bank will accelerate the availability of funds and resources for
reconstruction. This would boost economic growth in the medium term. Against
that, a cabinet reshuffle may be in the cards as a result of public perceptions
of delays in undertaking emergency measures in favor of the areas afflicted by
the typhoon.
A new Reuters survey reveals a consensus estimate that Taiwan's gross domestic
product (GDP) fell 7.5% in the second quarter, an improvement from the first
quarter’s 10.2% decline, on the back of improved export figures. That is also
an improvement from the 8.5% consensus estimate for the second-quarter decline
from a May survey.
Overall contraction for the current calendar year is now estimated to be 4%,
slightly worse than estimates for Hong Kong and Singapore. This forecast takes
account of the still atrocious but nevertheless improving trade turnover
figures, as Taiwan's exports in July fell 24.4% from the same period a year
earlier, this being however the smallest drop during the current year as
foreign demand continues to recover.
In the immediate aftermath of the storm, investors drove the Taiwan Stock
Exchange Index (TSEC) up 2.9% last week, reversing the previous week's 2.95%
decline. That sentiment was short-lived, with the index down 4% to 6,790 on
light turnover in the first two trading days this week.
This level is just above a short-term support from six weeks ago that it has
already once respected, at the end of the first week of the current month. The
TSEC could settle into a trading range between 6,850 and 7,200 before deciding
when to make its next move to the upside, possibly retracing as far as 6,600 or
lower before stabilizing around 7,000.
Investors in Taiwan are also watching the Chinese market, where the Shanghai
Stock Exchange Composite recovered on Tuesday to almost 2,900 after falling 17%
from nearly 3,500 in the past fortnight. Taiwan is a springboard for foreign
investment in the mainland, and the island also has the experienced businessmen
that Beijing needs.
Thus further bad news, of medium- rather than short-term significance to
investors, would have been Taiwan President Ma Ying-jeou's revelation in an
interview after the typhoon hit that the widely anticipated Economic
Cooperation Financial Agreement with China (ECFA, in practice something like a
free-trade agreement) would probably not be signed until next year.
At the same time, a report last week by the Chung-Hua Institution for Economic
Research concluded that an ECFA would not benefit the island's economy overall
but result only in diverting Taiwanese exports from the rest of the world to
China, creating a trade dependence that would not necessarily be beneficial in
the long run.
Output in Taiwan itself would decline as industries in the medical equipment
and modern technology sectors would shift production to China. Those that would
benefit would be high-polluting, high-external-cost industries such as in the
chemicals, petrochemicals, steel and machinery sectors.
Defending Taiwan firms from Chinese investment is another problem that could
prove problematic in the long run. Taiwanese public opinion, now favorable to
the opening to China, will be less likely to support this policy if people do
not see that concessions are being reciprocated.
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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