Country Report Taiwan April 2009

Summary

Although the president, Ma Ying-jeou of the ruling Kuomintang (KMT), has seen his public popularity decline in recent months, he has a strong mandate to govern as the KMT also controls the Legislative Yuan (parliament).
The main opposition Democratic Progressive Party (DPP) will continue to portray Mr Ma's efforts to sign an economic co-operation framework agreement (ECFA) with mainland China as a risk to Taiwan's sovereignty.
In March the Central Bank of China (Taiwan's central bank) left its key policy interest rate unchanged, citing modest signs of a recovery in merchandise export orders and domestic consumption. However, further cuts are likely.
Taiwan's fiscal position will weaken significantly in 2009-10, with the budget balance slipping to an average annual deficit equivalent to 5.2% of GDP in 2009-10, from an estimated deficit of 1.3% of GDP in 2008.
The Economist Intelligence Unit forecasts that real GDP growth will contract by 9.3% in 2009. Our view is reinforced by a composite index of leading economic indicators, which fell to 84.8 points in February.
Consumer prices are forecast to fall by an average of 1.6% in 2009, and then to rise by just 0.3% in 2010.

Political opponents of Mr Ma have seized on the slow progress in moving forward on an ECFA with China, suggesting that he is inept, while also arguing that the deal will undermine Taiwan's sovereign status.
On the 30th anniversary of the de facto defence treaty between the US and Taiwan, the Taiwan Relations Act, the House of Representatives (the US lower house) passed a resolution reconfirming its commitment to Taiwan.
Mr Ma's efforts to stimulate investment and growth received a boost in early March, when the cabinet approved plans to cut Taiwans corporate tax rate to 20%, from 25%.
Industrial production fell by 27% year on year in February. Double-digit declines in this sector have been one of the main causes of the sharp rise in unemployment that has been recorded in 2009.
In March the consumer price index fell by 0.2% year on yearprice falls were recorded in several components of the index. The wholesale price index fell by 9.2% year on year, led by a drop in prices for petroleum and natural gas.
Kaohsiung harbour lost its position among the worlds top ten busiest ports in 2008, slipping from 8th position to 12th, according to an annual report published by a UK journal, Containerisation International.

Source: Country Report