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Fuel, electricity price hikes to take toll on economy: scholars

2012/04/15 20:06:49

Taipei, April 15 (CNA) A looming rise in electricity rates and a steep hike in fuel prices will put further pressure on Taiwan's economic growth and inflation rate, economists at Taiwan's top research institutions said Sunday.

The price hikes will serve as a drag on the country's economy and probably keep the economic growth rate for the year down to just above 3 percent, said Ray Chou, a research fellow at Academia Sinica's Institute of Economics.

The actual growth rate, however, will also depend heavily on global economic activity, said Chou, who also predicted that inflation in 2012 would be "very close to 2 percent."

Chou's adjusted 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, deputy director of the Taiwan Institute of Economic Research's macroeconomic forecasting center said that if crude oil prices remain high, inflation will likely surpass 2 percent.

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 metal and petrochemical industries.

But 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 and end up having them trickle down to their bottom lines.

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 hikes in electricity prices would increase inflation by 0.66 percentage points and lower growth by 0.26 percentage points.

Beginning on May 15, state-run Taiwan Power Co. will hike power rates for industrial users by 35 percent, for commercial users by 30 percent and for households by an average 16.9 percent.

Sun expected that the rise in electricity rates would put more pressure on households than the fuel price hikes, which averaged about 10 percent.

Meanwhile, the ministry said Sunday it will maintain existing electricity discounts for schools, public street lighting and the electrical railway system as part of the government's effort to reduce the overall economic impact of the higher power rates.

(By Lin Hui-chun and Hanna Liu)