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May 30, 2017

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Taiwan's economy finds itself at a crossroads

As exports decline and the local IT sector loses its edge in innovation, Taiwan now stands at a crossroads. The island's next steps in its economic development plan will determine the country's future.

Last year, the Council for Economic Planning and Development (CEPD) promised a prosperous 2013, and indicated that GDP growth might exceed 4 percent. However, the Cabinet's Directorate-General of Budget, Accounting and Statistics (DGBAS) recently adjusted Taiwan's economic growth rate predictions downward to 1.74 percent for 2013.

The DGBAS said weak exports were the main reason behind the worse-than-expected economic growth rate this year. This claim, however, contradicts evidence that worldwide exports were measured to have grown in November.

As a result of this worldwide export growth, the Institute for Supply Management (ISM) in the U.S. reported growth in the purchasing manager index (PMI), a gauge of the manufacturing sector, in November. The score reached 57.3, the highest seen since April 2011. The export order index also reached its highest point in the last two and a half years or so. High demand from markets in Europe, Japan and China drove growth momentum, the ISM said.

As a result of strong exports, Japan's PMI reached 55.1, its highest number in four years. The eurozone's PMI was pegged at 51.6, which was higher than expected and also marked a two-year high. Analysts said that exports drove manufacturing sector growth in the eurozone.

As exports contribute more than 60 percent to Taiwan's GDP, the fact that the country's exports have suffered recently as exports surged elsewhere around the world signals a warning that deserves our attention.

It appears that nations around the world have placed more focus on developing their manufacturing sectors, and it has become clear that Taiwan will face even greater competition with foreign firms in the future.

Scholars from several research institutes indicated that the competitiveness of local companies appears to have declined over the years. As the electronics and optical industry produces the bulk of Taiwan's exports, Taiwan's IT sector has a pressing need to innovate.

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