05.24.2001
Unemployment at 3.9% in April, to balloon to 4.6% in August

• The unadjusted unemployment rate broke yet another record high in April with 4.0%, while the adjusted rate shot up to 4.3%, from March's 4.1%. This is the highest figure on record since the 1960s. The cyclical and structural problems that are affecting Taiwan's economy have pushed the number of unemployed up to 385,000 in April. Of this number, 168,000 were reported to have lost their jobs due to company closure or relocation. In April alone, 6,000 people were laid off, down from 19,000 in March.

• We see the unemployment rate continuing to rise as students start to graduate and young men return from military service in the next few months. We forecast the jobless rate (unadjusted) to peak at 4.6% in August and increase to an average of 4.1% in 2001.

• The Council of Labor Affairs (CLA) reported earlier this month that it spent over NT$1.0b in unemployment compensation in 1Q01, compared to NT$2.0b over the last two years. There is no formal unemployment compensation system in Taiwan, although the CLA provides temporary aid to workers who have lost their jobs. This makes it harder to estimate the real number of jobless people in Taiwan as there is a lack of an incentive to report their status. We estimate that the actual unemployment figure is likely to be as large as double the official one.

• Meanwhile, record-high unemployment will allow the Central Bank to further reduce interest rates by keeping a lid on wage growth. In the absence of inflationary pressure from wages and goods prices, we expect the Bank to cut interest rates once again in June.

• VB Primasia Opinion: In the absence of inflationary pressure from wages and goods prices, we expect the Bank to cut interest rates once again in June.

IrmakSurenkok@Primasia.com +886-[0]2-2547-8873