Monday, February 22, 2010

Taiwan's Rapid Recovery

"Russian components, American components-all made in Taiwan!", so said the Russian cosmonaut Lev Andropov (played by Swedish actor Peter Stormare) in the 1998 movie Armageddon in reply to the comments by a female American astronaut that he didn't know the components.

That was and remains a great exaggeration of course. Many, and probably most components are made outside of Taiwan, but it seems that more and more of them in terms of absolute quantities (though not necessarily in terms of market share) as well as other products are made in Taiwan.

Taiwan's GDP rose as much as 8.5% compared to a year earlier in seasonally adjusted terms and 9.2% in unadjusted terms. Compared to the previous quarter it rose 4.2%, or 18.0% at an annualized rate.

Bloomberg in its version claims that only now did Taiwan exit the recession, because only now did the yearly change turned positive, but usually the criteria for this is when the quarterly change turns positive, and the quarterly change turned positive already in the second quarter.

Not only has Taiwan exited the recession, it has in fact now recovered the entire loss in output during it, so that real GDP is slightly higher now than the previous peak in output reached during the first quarter of 2008. By contrast, while America, Japan and the EU has all recovered in the sense that quarterly change has turned positive, the absolute level of output remains below the peaks.

The main cause of Taiwan's recovery is the boom in neighboring mainland China. While political relations are still frosty (and turned even frostier after Taiwan recently bought advanced military equipment from America), trade and investment relations have increased dramatically, causing higher growth in both countries, and making war less likely.

Another reason for Taiwan's boom is its low tax and low government spending (only about 18% of GDP) policies.

In the long run, the extremely low Taiwanese birth rate (the fertility rate is only about 1 child per woman, even less than in the mainland or in Japan, and much less than the 1.5 to 2 fertility rate in most Western countries) is a threat to economic growth, though that won't be a significant problem for at least another decade and can be limited by immigration from for example the mainland.