The figures are able to speak for themselves

By Hwan C. Lin, Taipei Times, Dec 22, 2007

The Directorate General of Budget, Accounting and Statistics (DGBAS) has announced an economic growth rate of 6.92 percent for the third quarter, up from 5.24 percent for the second quarter. This is 2.45 percentage points higher than the government's forecast of 4.47 percent in August and 1.76 percentage points higher than the average forecast of 5.16 percent made by 12 Dow Jones economists. The DGBAS has thus revised its forecast of 4.58 percent to 5.46 percent, an increase of 0.88 percentage points.

The gradual revitalization of the economy has made several politicians lose their bearings. Chinese Nationalist Party (KMT) vice presidential candidate Vincent Siew (蕭萬長) and former DGBAS director-general Duan Wei (韋伯韜) say the figures are purely for election purposes and suspect they have been made up.

Last week, Yeh Wan-an (葉萬安), a former KMT government official, said the DGBAS figure might be overestimated by at least 1 percentage point.

As national economic statistics follow a set of strict, internationally observed procedures, Wei and Yeh should understand that forecasts and outcomes are often inconsistent and that discrepancies can be large. It is not so much that the statistics are wrong but that the economic environment cannot be controlled.

For example, Singapore's economic growth forecast based on annualized third quarter growth was 6.4 percent, but the final figure was only 4.3 percent -- a discrepancy of 2.1 percent.

As a reflection of the uncertainty of the global economy, the Singaporean government has forecast that growth next year will fall between 4.5 percent and 6.5 percent. The difference of 2 percentage points is meant to accommodate a large discrepancy between the forecast and reality.

As for the US, the forecast annual growth rate based on annualized third quarter figures is 4.9 percent, 1 percentage point higher than the rough forecast of 3.9 percent a month earlier. This is the highest third quarter growth in the last four years. Contrary to expectations, the subprime mortgage crisis didn't have an impact on third quarter growth.

The real manipulators of distorted economic figures are politicians. The question of whether economic growth benefits all sectors of society is a matter of income distribution and whether deteriorating trade conditions will hurt proportional income growth.

Anyone contesting growth figures because of existing income distribution problems is unprofessional or lost in the attempt to manipulate political interests.

During President Chen Shui-bian's (陳水扁) first term, Taiwan's average annual economic growth rate was 2.8 percent, but that figure reached 5.2 percent in his second term.

From a GDP perspective, Taiwan has returned to a potential level of approximately 5 percent growth after undergoing the 2001 economic recession when the global high-tech bubble burst.

It is impressive to see Taiwan's economy retaining such resilience and flexibility after suffering years of political conflict.

However, Taiwan's worsened trade conditions have indeed meant that real GDP, which is used to calculate economic growth, includes a high proportion of illusory income -- according to my estimate, approximately 4 percent in 2004, 6 percent in 2005 and 7 percent last year.

In part, this is a reflection of how domestic industry is climbing the technological ladder, but also that their efforts to develop high-end products have been insufficient.

This is something the government should draw up careful and effective policies to deal with.

Hwan C. Lin is a research fellow at the Taiwan Public Policy Council and associate professor of economics at the University of North Carolina at Charlotte.

Translated by Ted Yang