No improvement in economy yet: CEPD

The China Post staff

Taiwan’s economy showed no sign of an upturn as the composite indicator for May continued to hover at a record low level, the Council for Economic Planning and Development (CEPD) said yesterday. But Vice Chairman Lee Kao-chao said some of the leading indicators also sent signals that the conditions are not getting worse, although recovery is not in sight yet.

The composite indicator measuring monthly domestic economic performance stood at nine points in May, the lowest level since the indicator was introduced in 1984, said the economic planning agency. The May composite index came in at the “blue light” category for the sixth consecutive month. The CEPD uses a five-color rating system to measure domestic economic performance. A blue light indicates recession at the bottom of the scale.

The index of leading indicators, used to gauge economic activity for the next three to six months, fell for the 16th consecutive month, hitting a 15-year low of 92.1 points, down 1.3 percent from April when it fell 0.5 from March.

Of the seven leading indicators, three were higher on a seasonally adjusted basis in May than a month earlier, the CEPD said.

These were M1B money supply, stock prices and average monthly working hours in the manufacturing sector, it said. Customs-compiled exports in value, orders for manufacturers, wholesale prices and housing start applications in area terms fell month-on-month.

Average utilization rate of production facilities in May stood at 76.8 percent, edging up 0.6 of a percentage point from the previous month, but down 4.2 percentage points year-on-year.

Manufacturing sales shrank 1.1 percent from April and dropped 11.6 percent from a year earlier.

The profit margin for manufacturers in May was down 0.1 percentage point from April and 1 percentage point from a year earlier to 4 percent, the lowest level since March 1983.

The CEPD’s own survey shows 13 percent of manufacturers expect the economy to make an upturn over the next three months, down from 15 percent a month earlier, while 39 percent held a negative view, up from a revised 34 percent in April.

It said 48 percent of manufacturers expected the economy to maintain its current direction, down from a revised 51 percent in April.

In spite of the generally gloomy picture, CEPD Vice Chairman Lee pointed out some bright spots. He said that it is still too early to affirm an economic upturn, “but not all messages are negative.” Lee noted that many crucial indicators did not get worse in May and are now poised for change. Among the most important indicators, the effective exchange rate for Taiwan currency in May fell 1.29 percent from April and 5.24 percent from the same month of last year. This means Taiwan’s exports are relatively competitive in comparison with 17 major competing trading nations. Although the actual export trade was weak in May, the effects of currency depreciation will gradually increase trade surplus. This will help induce a recovery of Taiwan economy even in the absence of any stimulus policies from the government if other favorable situations develop in international economy. Lee also cited the more optimistic findings of a survey revealed by the Taiwan Institute of Economic Research showing that 38.4 percent of companies in Taiwan see an improvement in business conditions in the next six months, up from 34 percent holding the same view in April. Those that think the situations will turn worse decrease to 26.9 percent from 31.2 percent one month earlier. Hu Chung-ying, director of the CEPD’s Department of Research, said if all major leading indicators continue sliding at bigger range, it will become extremely difficult to attain an annual economic growth rate of 4 percent. He said it would be too early to say if the economic growth rate will hit over 5 percent for the third quarter and over 6 percent in the final quarter as expected by the Directorate General of Budget, Accounting & Statistics (DGBAS).

A more precise forecast for the annual growth rate can be made after the DGBAS compiles and reveals more statistics data in August.