The government’s business climate monitor last month was “red” for the first time in a decade, as the economy is heating up due to strong demand for tech and non-tech products, as well as a low comparison base last year.
The monitor gained 3 points to 40, the highest in 32 years. Officials shrugged off bubble and inflation concerns, saying the “red” signal came on the back of solid economic fundamentals.
“Robust exports, private investment and consumer spending accounted for the boom that had nothing to do with bubbles or drastic inflation,” National Development Council (NDC) Deputy Minister Kao Shien-quey (高仙桂) told a media briefing.
The council uses a five-color system to portray the nation’s economic state, with “green” indicating steady growth, “red” suggesting overheating and “blue” signaling a recession. Dual colors indicate a transition.
Many have voiced concerns about potential economic bubbles, as COVID-19 infections remain high in many parts of the world, while some research bodies have warned that central banks could reverse loose monetary policies early to rein in inflation risks.
The government has been closely watching international raw material price movements and believes that the price hikes so far are benign, Kao said.
Although Taiwan’s GDP growth this year is forecast to reach 4.64 percent, the central bank last week said it would stand by its current accommodative monetary policy in line with its global peers for fear that a rate hike would attract hot money.
NDC Minister Kung Ming-hsin (龔明鑫) had earlier told lawmakers that the government might consider tightening measures if the boom extends into the second half of this year.
Isolated “red” signals pose no threat, Kung said.
The COVID-19 pandemic started in January last year, weakening economic growth over the following several months, but things started to improve in the second half.
The index of leading indicators, which aims to portray the economic situation for the next six months, picked up 0.52 percent to 106.69, as gauges on imports of semiconductor capital equipment, manufacturing business confidence and labor entry rates all pointed upward, the council said.
However, readings on export orders and new construction floor areas slipped from one month earlier due to unfavorable holiday effects.
The index of coincident indicators, which reflects the current economic state, grew 1.35 percent to 106.8, with markers such as power usage, retail sales, manufacturing sales and restaurant revenue all gaining value due to business improvement, the council said.
Non-farm payrolls and exports declined from a month earlier, as there were fewer working days last month.
Major tech firms are upbeat about their business this month and beyond, lending support to the economic boom.
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