TAIPEI (Taiwan News) — A "blue" light economic indicator showed that Taiwan’s domestic economy contracted for the first time in four years.

However, some economists fear a further downturn as exports will continue struggling in the short-term, leading to corporate debt defaults. For employees, the fear is that many will be subject to unpaid leave early next year as the global economic downturn continues to recover from the COVID pandemic and supply chain disruptions.

In a Yahoo news report, Wu Da-ren (吳大任), CEO of National Central University's Research Center for Taiwan Economic Development, said the main culprit for economic disruption has been the continual increase in U.S. interest rates due to inflationary concerns. This, in turn, has had a serious impact on U.S. household income, leading to less spending on non-essential items like mobile phones, laptops, and bicycles.

Export-driven economies, like Taiwan, can expect to feel a reciprocal impact, and according to statistics from the Ministry of Finance, Taiwan’s exports in November fell by 26% compared with the same period a year earlier.

However, Wu warned the worst may still yet come as November may be only the start of a downward trend. Wu believes that the U.S. economy will not recover until the U.S. Federal Reserve starts to cut interest rates.

Unfortunately, the likelihood of a turnaround may not occur until the end of next year at the earliest. With the U.S. economy still in a weakened state, many anticipate Taiwan exports to continue declining, leading to a gloomy atmosphere for the domestic manufacturing industry.

If such conditions persist, employees may be forced to take unpaid leave and corporate debt default could become a problem. Wu said that weaker exports could lead employers to seek out cost-cutting, with companies potentially asking employees to take unpaid leave after the Lunar New Year.

Lagging exports could result in more serious economic problems with layoffs looming. As for companies with high debt leverage, Wu believes they may have problems with debt default exacerbated by interest rate hikes.

For example, some domestic bicycle factories are starting to flash warning signs. In the past, their debt situation was good, but now they are starting to experience problems with tightened cash flow.

Should the economy continue declining, Wu suggests the government take a closer look at what can be done to deal with the problems many exporters are facing.