Oil prices could retard growth

The nation's economic growth may fall below 3.5 percent this year if oil prices remain at their current record-smashing level, Hu Sheng-cheng (胡勝正), chairman of the Council for Economic Planning and Development (CEPD), said yesterday.

"Taiwan's GDP growth will decline by 0.15 percent with every 10 percent oil prices go up," Hu said.

"It would be very hard to keep the economic growth target at 3.5 percent should oil prices remain at current levels," he said.

After climbing as high as US$60.95 per barrel, the August contract for crude rose US$0.70 to close at US$60.54 a barrel on the New York Mercantile Exchange overnight.

The government last month revised its economic growth forecast from 4.21 percent to 3.63 percent, while the CEPD maintains its target of 4.5 percent for this year.

However, President Chen Shui-bian (陳水扁) pledged to keep GDP growth at a level of at least 4 percent this year, the Chinese-language cable television network Unique Business News reported, citing Chen in an interview broadcast on Monday night.

Achieving a growth rate of 4 percent to 4.5 percent for this year while the global economy is slowing will be a "tough task," Chen said in the interview.

High oil prices have forced state-run Chinese Petroleum Corp (CPC, 中油) to consider raising its wholesale prices again, Tang Wan-li (唐菀莉), a director at CPC's public relations division, said yesterday.

Since CPC raised wholesale gasoline prices in March, crude oil prices have jumped by 9 percent on the international markets.

Nonetheless, CPC will not raise its prices to match this increase because of the impact it would have on consumer prices and the nation's economy, Tang said.

"The hike will be less than 9 percent ... we will make the adjustment only when crude oil stays above US$60 per barrel for 10 consecutive days, as we promised," Tang said.

Electricity prices may be next in line. Premier Frank Hsieh (謝長廷), who expressed his opposition to the raising of utility rates when he took office in February, said on Monday that electricity prices may be raised in fall or winter to cut Taiwan Power Co's (台電) widening loss.

Although higher energy costs are expected to increase the inflation rate, Hu urged the public not to panic, saying various countries have asked OPEC to boost production in a bid to curb soaring oil prices.

As a result of rising fuel costs, local carriers, including China Airlines (華航) and EVA Airways Corp (長榮航空), expect slimmer margins this year.

China Airlines reported pre-tax earnings of NT$500 million (US$15.9 million) this year, far from its target of NT$4.4 billion as rising fuel costs continued eating into its profits.

The carrier will decide whether to revise its financial forecast for the year after the end of the second quarter, China Airlines spokesman Roger Han (韓梁中) said.

The carrier has proposed raising its surcharge from NT$13 to NT$21 per flight a few weeks ago, but the proposal was rejected by the Ministry of Transportation and Communications, Han said.

Fortunately, China Airlines sees strong demand for the passenger sector over the peak holiday season, Han said.