Taiwan Economy: III. GDP and other economic indicators

III. GDP and other economic indicators

Nominal GDP
Gross domestic Production (GDP) is deemed one of the most significant and frequently used economic indicator as it can somehow reflect the standard of living and the apparent situation of an economy. It measures of national income and output for a given country’s economy in a specific period of time.

Graph 1

Taiwan

household consumption: 59.5%
government consumption: 12.2%
investment in fixed capital: 19.4%
investment in inventories: 0.3%
exports of goods and services: 73.1%
imports of goods and services: -64.5%
(2013 est.)

Graph 2

Taiwan’s GDP have a stable and sharp increase since 2000, from 326 billions of U.S. dollar in 2000 to 489 billions of U.S. dollar in 2015, which was also the highest among previous years. Refer to graph 2 and correlate with graph 1, graph 2 shows the component of GDP of Taiwan, it is largely contributed by household consumption, and comparatively small by government consumption. Linking with graph 1, the ballooning GDP, this likely reflects that Taiwan citizens’ material standard of living is enhancing overtime. We can further prove this by having a look on the following parts discussing the real GDP, GDP per capita and other indicators.

There is a drastic drop of GDP in 2001, a sudden shrank of 4.2 percent in the third quarter. Taiwan suffered from recession as there was a rapid dropoff in demand for electronics products from United States, Taiwan’s biggest export market (You may also refer to our First part: Economic history of Taiwan for more details) [1] , and the deflationary pressure in asset market, the continuous credit crunch have led to production cutbacks. It starts to recover steadily due to the expansionary monetary policy adopted. [2]

Graph 3

The GDP growth rate of Taiwan is increasing over the past few years. On a city basis, its size and resources has limited Taiwan to compete with countries like China and Vietnam as it cannot launch a large-scale production or industrialization as them but to face keen competition on developing tertiary industry. However, a GDP growth rate of 3.7% in 2014 is on par comparing with other cities. Taiwan can maintain its status among “East Asian tigers”, which has a similar or even higher GDP growth rate than Singapore, Hong Kong and South Korean in 2014, and according to DBS SME Banking, Taiwan is estimated to advance steadily and keep the position.

Real GDP

Graph 4

Graph 4 shows the trend of real GDP of Taiwan from 2000 to 2015, overall, it indicates the rise of real GDP of Taiwan and the standard of living of Taiwanese since it is the inflation-adjusted value. Some country may have high GDP at current price but we cannot confidently conclude that it has a high standard of living as the price of goods and services might be high too. However, real GDP, known as the GDP at constant price, which means using the price of base year to calculate can more likely show the real production situation of an economy. Thus, besides showing the improving standard of living, it also gradually manifest Taiwan has become a productive country.

GDP per capita

Graph 5

Graph 5 shows the real GDP per capita of Taiwan economy, GDP per capita is a more accurate economic indicator reflecting the standard of living of people since it is population-adjusted. Even if an economy has a high real GDP, we can analyze that this economy is productive, but we cannot conclude that the people have a high standard of living because population of economy is a major factor too. An economy with high real GDP and large population might reflect a low level of standard of living. Studying graph 4, we can know that the material standard of living of Taiwanese is actually increasing overtime, it is likely that more goods and services are available to consumers and consumers are in a better position to buy them. From 1980 to now on, the GDP per capita has increased in four-fold.

Graph 6

Graph 7

Ranking the 29^th based on the GDP per capita on a purchasing power parity (PPP) basis, Taiwan has scored a quite high ranking already. PPP, calculated in U.S. dollar, determine U.S. prices against domestic prices. The price stability is vital in calculation, on which Taiwan focuses so heavily and thus its purchasing power leap ahead of many cities, and even some advanced countries like Japan [3]. Though it is still way far from overtaking economies like Singapore and Hong Kong due to the problem of relatively lower labour productivity.

There is another metric measuring only actual individual consumption, in which Taiwanese spending US$25129 per capita beats Singaporeans (US$24725), Japanese (US$24447) and South Korean (US$17481). [4] This measure is a better indicator to show the material well-being of people than GDP per capita since components such as military is not related to their life. This can focus on their consumption and can better reflect the real material living standard of people.

Taiwanese is enjoying a quite high material living standard as a whole. China and Japan are known as the 2^nd and 3^rd large economy, measuring of its GDP, but they have a ranking of 121^th and 37^th comparing to Taiwan, meaning each person in Taiwan is sharing a high value of GDP. We will consider the Gini coefficient in the later part to see its standard of living in a more accurate way)

Gini coefficient-Distribution of wealth

Graph 8

Graph 9

According to graph 8, the problem of income inequality seems not severe, as Taiwan only rank 94^th and the Gini index is much lower than others. Also, the Gini coefficient of Taiwan didn’t exceed 0.4, which seems not grave at all. However, we can have a look on graph 9, is shows that the Gini coefficient of Taiwan is low comparing to others, however, for disposable income, Taiwan’s Gini coefficient rank much higher since the government didn’t adapt policies to help the underprivileged such as transfer payment or induce higher taxes on the wealthy people.

Graph 10

From the above graph, it indicates the gravity of the problem of uneven distribution of income. There is a trend of increasing wealth gap, the top 20% of people owns much more than the lowest 20% of people. It means that there may be large variety of high quality goods and services available in Taiwan but lots of Taiwanese may not be affordable, which affects the well-being of living standard. The government should improve the situation without further ado, or else the Gini coefficient may exceed the line of 0.4.

Consumer Price Index-Inflation

Graph 11

The above shows the consumer price inflation rate over years of Taiwan, it fluctuates a lot, experienced inflation and deflation. Overall, the problem of inflation is not severe. During, 2003 and 2009, they are the two great recessions of Taiwan. In 2008, there is a sharp increase due to the financial stimulus plan and then the economy suffered from a financial crisis and fall drastically. Although it rebounded a little bit in 2010, it is only half of 2005’s rate.

Graph 12

Comparing with other economies, Taiwan’s case is definitely not severe, it ranked only 208^th on its inflation rate (consumer price), referring to graph 11, the inflation rate of Taiwan is most likely between 1% to 2%, in which Hong Kong and Singapore have around 5% inflation rate. It is because Taiwan has a tight control on price level, especially in pharmaceutical market.

Inflation rate on consumer price is much more reliable than GDP deflator when we measures the living standard since CPI only focus on consumers’ consumption. It measures a basket of consumer goods and services while GDP deflator measures all domestic goods and services produced in a specific period of time CPI also have different weighting according to our consumption pattern, which can reflect the living standard more accurate.

Unemployment rate

Graph 13

The unemployment rate of Taiwan has been fluctuating from 1980, but it is gradually increasing as well, from around 1% to around 4% to 5%, which can be deemed drastic. The peak in 2010 is due to the financial crisis encountered in 2008 and the economy went down a recession, in 2003 Taiwan also faced a great recession, pushing the unemployment rate to rise. After the financial crisis in 2008, the government immediate adopted policies to stimulate the economy and boost youth employment.

The youth unemployment rate seems more severe, having a unemployment rate of 12.27 percent [5] , which will be a problem correlate with aging problem in the society, Taiwan should consider the labour participation rate.

Conclusion

Taiwan as a whole can enjoy a high material living standard studying the GDP per capita and real GDP. However, not everyone can enjoy or have this privilege, the problem income inequality is becoming more and more grave. Generally speaking, the standard of living of Taiwan may not be as good as we see from data, as it cannot be determined merely by GDP or Gini coefficient and etc., it also measures the leisure time, the working hours and the environment of Taiwan, but Taiwan fails to perform well in these facets, its long working hours has long been the subject of discussions, and the government has not attach much importance on the conservation of environment yet. Therefore, whether the living standard of Taiwanese is good or bad needed debates. However, by looking at the data and graph, we can conclude that comparing with other economies, Taiwan perform well already, especially on price levels.

Reference:

Graph

[1] http://www.tradingeconomics.com/taiwan/gdp

GDP over time

[2] https://www.cia.gov/library/publications/the-world-factbook/fields/print_2259.html

GDP component

[3] http://www.tradingeconomics.com/taiwan/gdp-at-constant-prices-imf-data.html

Real GDP in TWD billion

[4] http://www.economywatch.com/economic-statistics/Taiwan/GDP_Per_Capita_Constant_Prices_National_Currency/

Real GDP per capita

[5] http://www.indexmundi.com/g/r.aspx?v=67

Real GDP per capita ranking