Fri, May 16, 2003 - Page 11 News List

As stores empty,economists warn of risk of deflation

REUTERS , TAIPEI

In just a few short weeks, SARS has done what two years of economic weakness failed to do -- empty Taipei's shopping malls.

The crowds that throng glitzy department stores have disappeared since a cashier at Pacific Sogo Department Store (太平洋崇光百貨) reportedly came down with the virus.

In the Hsimenting area, nine out of 10 stores have been closed because the nearby Huachang Public Housing Complex was sealed because of a reported SARS outbreak there.

"Who dares go shopping now?" asked Frank Lee, a young banker who said he stays at home on weekends and only ventures out for a quick joyride on his scooter out of sheer boredom.

Private consumption contributes a whopping 60 percent of the nation's GDP, even more than exports. Economists are now warning of deflation risks.

"Chances are high that Taiwan will see negative growth in consumer prices for the third straight year and deflation could be a major economic issue," said Wu Chung-su (吳中書), an economist at the Academia Sinica.

"Falling prices will hurt busi-nesses. Earnings then fall, which will force companies to scale back investments. What's more, lower wages will affect spending by individuals," said Ma Jun, an economist at Deutsche Bank.

Ma cut his estimate of the consumer price index to a 0.3 percent drop this year from a 0.5 percent rise.

Consumer prices fell 0.19 percent year on year in the first four months of the year. Today the government is expected to post slowing GDP in the first quarter due to weak demand from the US market and is bracing for a worse second quarter thanks to SARS.

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