Sat, Dec 26, 2015 page13

• Local business outlook bleak: TIER

  ‘STRONGER MEDICINE‘: The think tank’s Gordon Sun said interest rate cuts might ‘take up to nine months to affect the real economy,’ though housing might not cool

  • By Ted Chen / Staff reporter
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  The business outlook of local firms in a variety of sectors remained bleak last month amid weakening growth in China and emerging markets, the Taiwan Institute of Economic Research (TIER, 台經院) said yesterday.

  Last month, the business climate gauge for the manufacturing industry dipped 0.06 points from the previous month to 91.24, and dropped 0.48 points to 80.58 for the services industry, with the figure receding 1.55 points to 84.72 for the construction industry, TIER’s monthly survey showed.

  Concurrently, the proportion of manufacturers holding an optimistic view about their business dropped 11.8 percent to 8.5 percent, while those expecting a continued economic downturn increased by 8.9 percent to 42 percent, the survey showed.

  “As the US Federal Reserve begins its tightening cycle while Japan and Europe continue easing, local businesses remain concerned about rising volatility in financial markets due to diverging monetary policies in major economies,” TIER president Jeff Lin (林建甫) said.

  The institute last month cut its forecast for GDP growth this year from 3.11 percent projected in July to 0.83 percent, and said the nation’s export-oriented economy could fare better next year with a 1.84 percent expansion, even though the economy would remain tepid until after the first quarter.

  In a move that signals monetary policymakers’ concern over the economy, the central bank announced on Thursday last week a 12.5 basis point cut to policy rates.

  TIER said that while it was surprised by the central bank’s decision to lower rates for a second consecutive quarter, the move might help boost the nation’s lagging exports by initiating New Taiwan dollar devaluation and widening the interest rate spread between Taiwan and China.

  “Stronger medicine might be needed, as interest rate cuts may take up to nine months to affect the real economy,” said Gordon Sun (孫明德), director of the Taipei-based think tank’s economic forecasting center.

  However, the latest rate cuts might not help the cooling housing market much, the institute said.

  “Buyers are still looking for steeper price cuts, while sellers and developers take advantage of lower costs of holding on to inventory as they wait on a rebound,” TIER senior analyst Arisa Liu (劉佩真) said.

  Home prices are expected to decline by a double-digit percentage next year, she said.

  In the past few years, home developers have enjoyed tremendous gains since the SARS outbreak in 2002, Liu said, adding that they should be able to withstand lower prices.

  Overall, growth of the nation’s economy would continue to be crimped by falling commodity prices, weakening external demand for electronic products and the fast-growing cluster of electronics component makers cultivated by the Chinese government — locally known as the “red supply chain,” TIER said.

  The institute said that while the first two factors are cyclical and might be mitigated with the passage of time, the third would require significant shifts in government policy.

  In light of growing concerns over savings surpluses by businesses and individuals, the government needs to take the lead in addressing listless consumption and private investment, the institute said, adding that corporate earnings have continued growing, despite an economic downturn this year.
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