EDITORIAL @ Taipei Times: No cause for optimism.
Sunday, Jan 04, 2009, Page 8
As some stock markets around the world opened the new year with substantial increases in share prices on Friday, people may have hoped they could comfortably bid farewell to a dismal year while welcoming a more promising one.
Better think twice. There’s little reason to be optimistic about the global economy after several countries on Friday continued releasing weaker-than-expected economic data in the face of the ongoing global slump.
It started with Singapore, where the government said its economy might contract as much as 2 percent this year — worse than its November forecast of a 1 percent contraction or less — as the global downturn cut into demand for its goods. A few hours later, South Korea said its exports fell 17.4 percent last month from a year earlier, which forced the export-dependent economy to post an annual trade deficit of US$13 billion last year — its first since 1997. Seoul now forecasts the nation’s exports might grow a mere 1 percent this year from last year.
The bad news didn’t stop there, however, as a slew of surveys around the world showed on Friday that last month China’s manufacturing output declined for a fifth month, Australian manufacturers faced shrinking output for a seventh month, US factory activity fell to a 28-year low and Eurozone manufacturers ended their collective output at an all-time low.
In Taiwan, the government’s most updated data showed domestic manufacturers posted a sharp decline in industrial production in November, the largest drop since late 2001.
These dismal manufacturing figures from countries around the world suggest that major economies are all suffering along with the US because of a lack of new orders. The data also meant that as the global manufacturing sector ended last year with deep concerns of a recession, this year is set to be a very difficult one. In anticipation of this unprecedented challenge to their economies, several governments launched economic stimulus packages late last year, some including massive public projects, in a bid to boost domestic demand and fill the void left by slowing exports.
Policymakers have also acted with back-to-back interest rate cuts to create a loose monetary environment for households and companies, hoping this would lead to higher consumer spending and business investment. Some even took the unusual step of nationalizing key industries to avoid systemic risks.
Their efforts have however so far failed to generate economic results to contain the crisis. The reason their efforts haven’t worked wasn’t because the measures they took were wrong, but because the global slump this time is many times worse than people can imagine.
Some countries are already in recession while others are in danger of heading into one. But unlike previous recessions that tended to be brief and mild, the recession this time is likely to be longer in duration and far more severe in scope. Economists at Moody’s said the recession was formidable because of “the unparalleled magnitude and systemic cast of the financial crisis.”
Since the outlook remains grim in light of slowing orders, this year will surely be a bleak one marked by rising unemployment in particular. Therefore, there’s no reason to be optimistic. If caution is the only antidote to the economic uncertainty, governments should avoid rash decisions and remain vigilant against civic unrest and trade protectionism that usually appear with rising unemployment. Should cross-border collaboration be necessary to prevent the world economy sliding into a protracted recession, governments should show people a much stronger and coordinated policy.