Taiwan's surprising boom
By Scott Sumner
This caught my eye:
Taiwan kept borrowing costs unchanged and raised its growth forecast for the year in a rare display of optimism in a world grappling with the economic effects of the pandemic.
The central bank’s decision to hold the interest rate reflects confidence in an economy where the stock market is near a record high, exports are booming and the Covid-19 pandemic is being held at bay.
The economy is now expected to grow by 1.6% this year — up from June’s 1.5% forecast — driven by government spending and private investment as supply chains get relocated from China, central bank Governor Yang Chin-long told reporters Thursday.
You might argue that 1.6% RGDP growth is not a boom. But consider that Taiwan’s population growth rate is only 0.2%. A growth rate of 1.4% in per capita terms is fairly normal for a rich economy like Taiwan. And notice that while the unemployment rate briefly spiked during the Covid crisis, it’s rapidly plunging back toward the 3.7% level of the 2018-19 boom.
Meanwhile, China’s export machine is reaching new all-time highs:
Note that while the graph title says “imports”, the graph actually shows China’s share of global exports.
The WSJ reports that China’s domestic economy is also doing well:
China’s economic recovery accelerated in August, with retail sales, the last holdout among the economy’s major components, returning to pre-coronavirus levels by showing their first month of growth this year.
Other major indicators, including factory production, investment and property activity, all gathered pace, China’s state-run statistics bureau said Tuesday, signaling a robust rebound for the world’s second-largest economy. The main official measure of joblessness, the urban surveyed unemployment rate, edged down to 5.6%, the lowest since it stood at 5.3% in January, when the coronavirus began to affect hiring. That is comfortably below the government’s targeted ceiling of around 6% for the year and down from the record high of 6.2% in February.
What lessons can we draw from this information?
Lesson #1: Early in the crisis, we were told of a “trade off” between health and the economy. Taiwan has done better than almost any other place on earth in terms of containing Covid-19, and its economy is outperforming almost all other developed economies. It turns out that controlling the epidemic is a good way to avoid an economic disaster.
Lesson #2: Early in the crisis, especially before Covid-19 spread to other countries, we were told that Covid was a huge blow to the Chinese economy and that the economic center of gravity would shift a bit toward other Asian economies like India and Vietnam. Very few people, if any, predicted that China’s share of global exports would rise sharply in 2020. One should always be suspicious of predictions of the end of the Chinese boom, which have been consistently wrong for nearly 40 years.
Of course it’s possible that these two countries are outliers. But this graph in the FT suggests that if anything there’s a slight negative correlation between economic growth and fatality rates. Growth is a bit higher, on average, in countries with fewer deaths:
Sweden gets a lot of attention, but it’s something of an outlier.