Economists differ on effect of oil prices

Economists yesterday expressed mixed views toward comments by US Federal Reserve Chairman Alan Greenspan on skyrocketing crude oil prices on Friday as well as Tai-wan's economic outlook for next year after recent oil spikes.

"We must be cautious about Greenspan's optimistic remarks," Hsu Song-ken (許松根), a research fellow at Academic Sinica's Institute of Economics, said in a telephone interview.

While Greenspan said the surge in oil prices would not push the US into a recession as happened in the 1970s and the 1980s, he did not say that the current situation was not serious, according to Hsu.

Oil prices have stirred worries about the global economy after pushing through US$50 per barrel on the New York Mercantile Exchange last month, and jumping to a record high US$54.93 on Friday.

"Crude oil prices may not head down in the near future and persistently high oil prices are likely to impact Taiwan's export performance," Hsu said.

Exports rose 24.2 percent year-on-year to US$128.29 billion in the first nine months of the year, the government said earlier this month.

But Hsu said the growth may slow next year if oil prices continue to rise and drag down US economic growth. The US consumes around 20 percent of Taiwan-made goods, behind China's more than 30 percent. As a result, Taiwan's economic growth next year may decline in tamdem with the US' pace, he said.

The Asian Development Bank forecast last month that Taiwan's economic growth could slow to 4.8 percent next year, down from 6 per-cent this year, citing factors including volatile oil price rises and interest rate hikes.

Chen Po-chih (陳博志), chairman of the Taiwan Thinktank (台灣智庫), is more optimistic. He said oil prices would not continue to climb in the future to have a significant impact on the economy, because the high price are more a reflection of market psychology.

"I think Greenspan's assessment that oil prices may not soar in the future is reliable," said Chen, who is a former chairman of the Council for Economic Planning and Development (CEPD).

The current price level is not higher than was seen in the 1970s or 1980s, after taking inflation into account, Chen said.

Besides, the significance of oil imports to Taiwan's economy is much lower than it was some 20 years ago, Chen said.

According to the CEPD's statistics, the ratio of oil imports to Taiwan's total imports has fallen from 22.8 percent in 1982 to 8.3 percent last year, and the ratio of oil imports to GDP dropped from 8.25 percent to 3.7 percent over the same period.

Even so, oil price increases will have a major impact on industries that rely heavily on oil, such as chemical factories, the transportation sector and the fishing industry, Liang Kuo-yuan (梁國源), president of the Taipei-based Polaris Research Institute, said earlier this month.