Country Report Taiwan June 2009

Outlook for 2009-10

• The president, Ma Ying-jeou of the ruling Kuomintang (KMT), has seen his public popularity decline in recent months, but he has a strong mandate to govern, as the KMT also controls the Legislative Yuan (parliament).
• The controversial nature of negotiations on closer economic and political ties with mainland China was highlighted in May, when large street protests were organised by the opposition Democratic People's Party (DPP).
• Concerns about the weakness of the economy will lead the Central Bank of China (Taiwan's central bank) to continue to make modest cuts in official interest rates during 2009.
• The economy remains deep in recession, with private consumption, investment and exports all falling sharply. The economy is forecast to contract by 6.9% in 2009 and to experience a modest recovery in 2010.
• The New Taiwan dollar is forecast to weaken from an average of NT$31.5:US$1 in 2008 to NT$34.1:US$1 in 2010. The currency will continue to experience volatility against the US dollar, particularly in 2009.
• Consumer prices will fall by 1.3% in 2009, owing to weak demand and declining commodity and food prices, and are forecast to rise by just 0.8% in2010.

Monthly review

• In May the DPP organised a series of massive demonstrations in the streets of Taiwan's capital, Taipei, to protest against the government's policy of closer ties with mainland China.
• The Chinese government has given its permission for Taiwan to attend the World Health Assembly (the annual forum of the World Health Organisation). The decision represents a major breakthrough in cross-Strait relations.
• Moves to open Taiwan's economy to increased investment from mainland China were formalised in late April. Although there will still be ownership limits in most sectors, the move should provide a boost for Taiwan's economy.
• Real GDP slumped by 10.2% year on year in the first quarter of 2009, the biggest contraction in any quarter since records began in 1961. The decline was broad-based, with private consumption, investment and exports all falling.
• Taiwans exports fell for the eighth consecutive month in April, registering a 34.3% drop in value compared with the same month last year. Exports are suffering as a result of the collapse in global demand.
• The average monthly income of workers fell sharply in the first quarter of 2009, with wages in the industrial sector down by 15.5% year on year.

Source: Country Report