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Factories upbeat despite slowdown

"It is likely that fuel prices will remain at their high level in the near term, which will in turn pull down local GDP growth."

David Hong, acting president of the TIER

The nation's economy slowed further last month, with the index of leading indicators down 0.7 percent from June, when it increased by 1.8 percent, according to a report released yesterday by the Council for Economic Planning and Development.

The July showing signaled a "yellow-blue light," the same as in June, which indicates a slowdown in the economy, the report said.

It was the fifth month in a row the economy has been rated yellow-blue.

Nevertheless, local manufacturers are upbeat about the economic outlook over the upcoming months, as peak season nears and exports are projected to rise, according to a report released by the Taiwan Institute of Economic Research (TIER, 台經院) yesterday.

Forty-five percent of manufacturers polled last month said that they expect the nation's economic sentiment to turn in their favor in the next six months, up from 41 percent of a month earlier, the report said.

Taiwan's exports reached US$15.43 billion in July, an increase of 5.3 percent year-on-year. It amounted to US$105.11 billion for the first seven months of the year, an improvement of 6.6 percent over the same period of last year, according to government statistics.

Although exports are showing marginal strength, the positive economic outlook might still be hindered by the recent hike in oil prices, which is anticipated to eat into the profits of Taiwanese businesses.

"It is likely that fuel prices will remain at their high level in the near term, which will in turn pull down local GDP growth," said David Hong (洪德生), acting president of the TIER, told a media briefing yesterday.

The institute maintains its GDP growth forecast for the year at 3.31 percent, he said.

The government hiked its economic growth prediction to 3.65 percent from 3.63 due to stronger exports in the next half of the year. The prediction has been met with skepticism about whether the figure can be reached against a background of soaring oil prices.

"If the government's major public construction projects are going to be implemented soon, it will help boost GDP growth this year," said Yang Chia-Yen (楊家彥), an associate research fellow at the TIER.

Meanwhile, Hung said the chances of the central bank raising interest rates are slim in the near term, as the economy is stable and the inflation rate is under control.

However, an analyst expressed concern about the nation's rising consumer price index (CPI).

The CPI rose by more than 2 percent in the past three months compared with the same period of last year, which is substantially higher than last year's average of 1.62 percent, said Liang Kuo-yuan (梁國源), president of the Taipei-based Polaris Research Institute (寶華經濟研究院).

"This might prompt the central bank to increase its benchmark interest rates next month, as the bank's major concern now is to turn the real interest rates from negative to positive to ward off inflation," he said.
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