Manufacturers cautious on economic conditions

Battered by rising raw materials costs, manufacturers are becoming more conservative on the economic outlook for the next six months, according to a monthly report released by the Taiwan Institute of Economic Research (台經院) yesterday.

In the face of global hikes in prices of cement, oil and steel, most of the nation's small and medium-sized businesses were caught unawares. This has forced them to absorb rising costs and driven down profit margins and confidence in the business environment, Wu Rong-i (吳榮義), president of the Taipei-based private think tank, told at a press conference yesterday.

The institute's survey showed that only 23.1 percent of the polled companies -- down from July's 48.2 percent -- said business conditions last month were good.

According to the survey, 53.4 percent said the business climate last month remained unchanged, while those expressing pessimism about the situation rose to 23.5 percent from 16.2 percent the previous month.

As for forecasts for the next six months, 15.8 percent indicated a bearish outlook, a small rise from July's 13.8 percent.

Wu said manufacturers' concerns were an inevitable result of short-term variables, but that the nation's exports and industrial production were continuing to gain steam, indicating a more positive outlook over the longer term.

"Taiwan's economic expansion in the latter half of this year will see stable growth, although it's less robust than that in the first six months," Wu said.

Boosted by a global economic recovery and strong domestic demand, the institute in July revised upward its GDP growth forecast for the year to 5.67 percent from the 5.08 percent it had predicted in April.

The strong growth, however, might moderate next year when the adverse impact of rising oil prices, interest rate hikes and China's efforts to rein in its overheated economy start to emerge, the institute predicted.

To support his view, Wu cited the latest report released by the Asian Development Bank last Wednesday, which forecast Taiwan's economic growth rate at 4.8 percent next year, down from a 6.0 percent increase for this year.

As Taiwan Power Co (台電) and Taiwan Water Supply Corp (台灣自來水) plan to raise water and electricity rates early next year to reflect rising costs, Wu said the nation's central bank has been under pressure to adjust its key interest rates to avoid inflation.

The central bank may raise key interest rates 0.125 percentage points in its quarterly board meeting slated for Sept. 30, economists such as Cheng Cheng-mount (鄭貞茂) at Citibank Taiwan and Chou Ji (周濟) of the Chung-Hua Institution for Economic Research (中經院), told the Taipei Times last week.

The Central Bank of China has kept its rediscount rate, charged to commercial lenders for 10-day loans, at a record-low 1.375 percent since paring it 15 times from December 2000 to June last year.