Fuelling Concerns

Economic News

22 Jul 2010
Text size +-
Recommend
Rising international energy prices are hitting at the Taiwanese economy, generating uncertainty in the marketplace and threatening to slow growth.



According to the Taiwan Institute of Economic Research (TIER), Taiwan is facing increasing inflationary pressures, in part due to the upward movement of fuel costs. Releasing its monthly business climate survey on May 28, which showed that an growing number of respondents from the manufacturing sector had a negative outlook for future developments, TIER's president David Hong said that while the group predicted GDP to expand by 4.3% this year, this figure could be adjusted, mainly due to the impact of further increases in the price of oil.



In fact, the latest round of fuel price increases came the same day, with the Formosa Petrochemical Corporation announcing an increase of NT1.1 ($0.04) per litre for petrol and a NT1.3 ($0.04) rise in diesel, taking the costs of a litre of premium unleaded petrol to NT34.6 ($1.14) and NT31.9 ($1.04) for top-grade diesel.



The increases brought Formosa's prices into line with those of its only domestic rival, the state-run Chinese Petroleum Corporation (CRC), which had announced its own price rises the day before,



Alex Huang, assistant vice president at Taiwan's Mega International Investment Services, said there could be more price rises in the offing, in turn raising concerns over inflation and the potential impact on the economy.



The latest price adjustments do not fully reflect crude oil price surges," Huang told the press. "There are worries about further hikes going forward."



In a move it said would better reflect fluctuations in global markets, the government announced on May 28 that fuel prices would be adjusted monthly in line with a floating price system. It also said the commodity tax on gasoline, diesel and fuel oil would be reduced by 25%, in an effort to compensate the state oil company. Though not likely to cut prices, the move will ease the pressure on CPC to pass on another round of increases to consumers.



The spiralling cost of fuel is also hitting Taiwan's aviation sector, with both China Airlines and EVA Airways recently announcing they were considering scaling back flight frequency on some routes due to mounting prices. China Airlines has also said it is looking at suspending some routes completely, mainly long haul flights.



On May 15, EVA announced it was suspending flights to the Indian city of Mumbai until "profitability conditions are reinstated". This could take some time, with both carriers reporting record high losses for the first quarter of the year, with China Airlines in the red to the tune of TD3bn ($97.4m) and EVA losing TD2.3bn ($75m). Both blamed the high costs of fuel as the main contributing factor to the poor Q1 results.



Another Taiwanese carrier, Far East Air Transport, has been even harder hit. Having filed for bankruptcy protection in mid-February after racking up debts of $328m as of last September, it halted operations on May 12 after it was unable to meet expenses, especially its long overdue payments for fuel and wages.



The airline has been given until June 2 by the Civil Aeronautics Administration to come up with a solid plan to restructure and prove it can be viable, or face having its flight rights revoked.



The rising price of fuel and its derivatives is having effects beyond the transport sector. The same day the new petrol and diesel prices came into effect, Chen Wu-hsing, the minister of agriculture, announced the costs of products produced by the Taiwan Fertiliser Company would increase by between 33% and 70%.



While Chen said the government would subsidise up to 70% of the increases and said there would be no further price rises before the end of the year, the latest hikes in both fossil fuel-based fertilisers and diesel are sure to hurt Taiwanese primary producers, who in turn will have to pass on their higher costs to consumers.



Though the broad-based Taiwanese economy is generally more resilient than many to global fluctuations, its total reliance on imported fuel sources nevertheless leaves it vulnerable to rising energy sources, posing concerns over growth and inflation.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart

Read Next:

In Taiwan

Mobile Payment

A trial is underway in Taiwan to showcase mobile phones as payment devices. It is hoped the program will help boost the credit card industry in Taiwan, which is recovering from a recent crisis...

Latest

How will the MICE segment survive Covid-19?

Amid global travel restrictions, social distancing protocols and prohibitions on mass gatherings, the world’s meetings, incentives, conferences and exhibitions (MICE) segment has been forced to...