A looming rise in electricity and fuel prices is likely to put further pressure on economic growth and inflation, economists at Taiwan’s top research institutions said on Sunday.
The price rises will serve as a drag on the economy and probably keep the annual economic growth rate to just above 3 percent, said Ray Chou (周雨田), a research fellow at Academia Sinica’s Institute of Economics.
However, the eventual growth rate will also depend heavily on global economic activity, said Chou, who predicted that inflation would be “very close to 2 percent” this year.
Chou’s forecast was much lower than the 3.81 percent growth projected by Academia Sinica at the end of last year and the 3.85 percent growth predicted by the -Directorate-General of Budget, Accounting and Statistics in February.
Gordon Sun (孫明德), deputy director of the Taiwan Institute of Economic Research’s (台灣經濟研究院) macroeconomic forecasting center, said if crude oil prices remain high, inflation would likely go above 2 percent.
He said he expected the electricity price hikes to have the biggest adverse impact on industries that consume large amounts of -energy and capital-intensive sectors such as the steel and petrochemical industries.
However, with the global economy still in the doldrums, Sun felt that many of the companies in high energy-consuming sectors would be unable to pass on the higher costs to their customers, as a result of which, they would impact their bottom line.
The Ministry of Economic Affairs recently estimated that the rise in fuel prices would add 0.37 percentage points to inflation this year and cut GDP growth by 0.22 percentage points, while the increase in electricity prices would increase inflation by 0.66 percentage points and reduce growth by 0.26 percentage points.
Beginning on May 15, state-run Taiwan Power Co (台電) will hike power rates for industrial users by 35 percent, for commercial users by 30 percent and households by an average of 16.9 percent.
The rise in electricity rates would put more pressure on households than the fuel price hikes, which averaged about 10 percent, Sun said.
Meanwhile, the ministry said on Sunday it would maintain electricity discounts for schools, public street lighting and the electrical railway system in an effort to reduce the overall economic impact of more expensive electricity.