Tue, Jun 29, 2004 - Page 10 News List

Economy gets a red light for now

By Joyce Huang  /  STAFF REPORTER , WITH AFP

The nation's economy showed signs last month of definite overheating for the first time in nearly 10 years, but it is too early to say that this will continue and become a problem, official data showed yesterday.

After flashing "yellow-red" for five consecutive months, the nation's main economic barometer edged up last month to turn "red," a sign that the local economy is beginning to overheat, the Council for Economic Planning and Development (CEPD) said yesterday.

The (CEPD) index of leading indicators for last month stood at 110.1 points, down 0.6 percent from April, when it posted a revised 1.4 percent month-on-month increase, it said.

The index -- comprising seven indicators including wholesale prices and export orders received by the manufacturing industry -- is designed to measure Taiwan's economic activity three months ahead.

The CEPD uses a five-level spectrum to gauge domestic economic health, with blue indicating recession, yellow-blue a slowdown, green steady growth, yellow-red a slight overheating and red an absolute overheating.

"It's the nation's first red light in a decade since November 1994," Hu Chung-ying (胡仲英), research director at the nation's highest economic-planning body, told a press conference yesterday.

Hu, however, dismissed worries about an overheating economy, saying that the red-light indicator released yesterday has a lot to do with the lower base of comparison in May last year due to the epidemic SARS.

"The situation is unlikely to persist in June," Hu said. "Unless the red light continues to flash for the next three consecutive months, which is highly unlikely, no conclusion about an over-heating economy should be made," he said.

Despite the recent decline of the TAIEX, the nation has seen great improvements in the financial sector's performance, the manufacturing sector has begun to recover and the service-sector has had rising employment, all of which have contributed to the red-light indicator for last month, further reinforcing a solid economic recovery in the second half of this year, he said.

But he also expressed concern over economic uncertainties including rising crude oil prices, the US Federal Reserve's decision to raise interest rates and China's cooling economy.

"The economy may slow down in the second half of the year compared to the first half," he said.

Hu predicted that the Fed is likely to raise its interest rates by 0.25 percentage point in a couple of days while seeing a total of one percentage point rise by the year's end.

"In spite of the decline, the nation's economic fundamentals remain sound, although its momentum in the second half of the year may not be as strong as the first half," Hu said.

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