Taiwan's economy is growing well, but wages are not increasing enough. Can investments help you beat inflation?

The Central Bank of Taiwan held a board meeting on the 21st, projecting Taiwan's economic growth rate to be 3.22% in 2024, surpassing the global average of 2.6%. However, Taiwan's real wage growth rate is significantly lower than that of South Korea, leading to a situation where wage increases cannot keep up with inflation. Can ordinary people rely on investments to increase their income?

Taiwan's Per Capita GDP Overtakes Japan and South Korea, Have You Felt It?

Last December, the U.S. financial magazine "Global Finance" released the Global Wealth Ranking for 2023, with Taiwan ranking 14th, with a per capita GDP of approximately $73,344 USD, about NT$2.28 million. This data not only surpasses Japan and South Korea but also outperforms most Western countries including the UK, Germany, France, the Netherlands, Canada, Israel, and Belgium. In fact, this is based on another weighted economic indicator, "GDP per capita, current prices," which calculates the per capita GDP of each country by incorporating Purchasing Power Parity (PPP) to offset differences in currency values and basic living costs.

The original per capita GDP data from the IMF is as follows:

South Korea: $34,650 USD

Japan: $34,550 USD

Taiwan: $34,050 USD

In reality, Taiwan's actual level is not much different from Japan and South Korea, but do salaried workers on the streets really feel it?

Taiwan's Economic Growth Excels, But Wage Growth Lags Behind South Korea

The Central Bank of Taiwan held a board of directors meeting on the 21st, estimating that Taiwan's economic growth rate in 2024 will be 3.22%, higher than South Korea's 2.3%, Japan's 0.7%, the U.S.'s 2.5%, and even higher than the global average of 2.6%.

According to the data provided by the central bank, since 2015, while Taiwan's economic growth has been better than South Korea's, the real wage growth rate reflecting the purchasing power of labor per hour is much lower than South Korea's but still higher than that of the U.S. and Japan.

The report points out that this is because the share of labor in Taiwan has decreased in terms of employee compensation as a percentage of GDP, while in South Korea, it has increased. Additionally, Taiwan's service industry is mostly made up of small and medium-sized enterprises, and the salary system in the service industry is not as comprehensive as in South Korea, which is dominated by large companies. Moreover, Taiwanese companies tend to prioritize shareholder interests. This also indicates that although small and medium-sized enterprises in Taiwan make money, most of the profit goes to the bosses and shareholders rather than being fully distributed to employees. Therefore, even though the per capita GDP is high, it is mostly taken by a few wealthy individuals, which is why the average folks on the streets don't feel it.

The report shows that since 2015, Taiwan's basic wage per hour has accumulated an increase of 59.1%, lower than South Korea's 89.3%.

With Increasing Mortgages and Rising Electricity Prices, Are Wages Keeping Up?

The Central Bank of Taiwan, in a surprising move, announced a half-point rate hike to combat inflation at a board of directors meeting on the 21st. This is the first rate hike since the second quarter of 2023 and will take effect on 3/22.

The central bank pointed out that globally, it was expected that domestic inflation would decline seasonally, but considering the high price increase since 2021 and the proposed electricity price hike in April this year, there is a fear of creating inflation expectations.

According to a report by the Economic Daily News, although this rate hike is only half a point, it marks the fifth rate hike. With the average mortgage rate of the five major banks in January at 1.953%, a loan of 10 million with a 30-year amortization schedule will result in a monthly repayment of 36,727 yuan. When the rate fully reflects the rate hike to 2.078%, the monthly repayment will increase to 37,353 yuan, requiring an additional payment of about 7,512 yuan per year. Since the start of the rate hike cycle, the annual repayment amount for a 10 million loan has increased by 41,076 yuan, equivalent to the average real monthly salary, adding significant pressure on mortgage holders.

At a meeting held yesterday to review electricity rates, it was confirmed that electricity prices will be increased in April. According to the proposal by the Ministry of Economic Affairs, the average adjustment in this round of electricity price adjustments is 11%, affecting industrial, small business, and residential electricity users.

The increase in electricity prices not only immediately increases monthly electricity expenses but will also lead to price adjustments in product pricing in the future, causing overall price increases. Additionally, renters will face pressure from landlords passing on the increased interest rates and electricity prices by raising rents, resulting in a significant increase in expenses for tenants.

According to statistics from the central bank, Taiwan's nominal total wage growth rate in 2023 was only 0.65%, with some industries such as manufacturing and electronics and communications experiencing negative growth rates. After adjusting for inflation, the real total wage growth rate in Taiwan was -1.79%, indicating that wage increases cannot keep up with the rate of inflation.

Can Investments Beat Inflation?

With wages failing to keep up with inflation, aside from improving one's primary job to increase wages or taking on additional work to increase secondary income, can investments also beat inflation and create passive income?

According to the central bank's statistics, since the beginning of this year, benefiting from strong demand for AI-related products and optimistic revenue prospects in industries such as semiconductors, technology stocks have performed exceptionally well; as of March 18th this year, major stock markets globally have mostly risen compared to the end of last year. The Nikkei rose by 18.8%, leading the way, followed by the Taiwan Stock Exchange at 10.9%, and many stock markets worldwide have recently hit historic highs.

Since the introduction of Bitcoin spot ETFs in the U.S. in January, it has attracted $11.3 billion in funds as of 3/21. In Taiwan, high dividend ETFs 00939 and 00940 have also sparked a wave of ETF enthusiasm, indicating that many people are concerned that deposit interest rates are not keeping pace with inflation and are opting for different types of investment to try to "increase wages" and avoid asset erosion.

The Global ETF Craze! Yuanta 00940 Attracts NT$170 Billion in Two Days

Looking at the five-year return rates of the U.S. S&P 500 Index (blue line), Taiwan Weighted Index (orange line), and gold (green line), which are 87%, 90%, and 62% respectively, all are sufficient to beat inflation. Bitcoin has seen an even higher five-year increase of 1529%, but its price fluctuates greatly, and without good timing in buying and selling, it can easily lead to substantial losses.

Investing is a profound field of study that requires an understanding of macroeconomics, the fundamentals of assets, the future of industries, and even psychology. However, the author believes that investing is a lesson that everyone must learn because only by establishing a suitable investment philosophy can one beat inflation and even create financial freedom in life.