Despite inflation concerns, Barclays raises local forecast to 3.5%


CNA

TAIPEI — Financial services provider Barclays raised its forecast yesterday for Taiwan’s economic growth in 2012 from 3 percent to 3.5 percent, despite an increase in its inflation forecast for the country.

Barclays forecast that Taiwan’s inflation will rise to an average of 2.4 percent between June and December from 1.2 percent in March, following the government’s announcement of major increases in power rates. 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 rates 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 of 16.9 percent.

Barclays estimated that the total effect of the power rate increases will add 75 basic points to the average inflation forecast this year, broken up as 20 basic points from petrol, 35 from electricity and 20 from second-order effects.

The risks for inflation are still tilted slightly to the upside, especially if services costs are passed on to consumers more quickly, it said.

Higher wages, however, are likely to minimize the impact of energy price hikes, it added, as private companies, including Hon Hai and Formosa Plastics, have recently said they will adjust salary scales.

As for economic growth, Taiwan’s economy likely turned the corner in the first quarter, supported by the warming market in the United States, Barclays said.

Momentum in industrial production and exports is accelerating, and consumer and business confidence is recovering gradually as fears over Europe’s debt crisis recede, it added.