The world`s economic climate has recently taken a gloomy turn in response to ballooning oil and commodity prices. A survey conducted recently by the Economic Daily News, Taiwan`s most authoritative economic newspaper, nevertheless indicates that most of the island`s enterprises remain confident of their prospects and optimistic about the global economy in the second half of the year.

Of the domestic enterprises in more than 20 industries that were polled, 33% believed that the economy would recover in the second half of the year. This was a sharp rise of 21.7 percentage points from the previous survey six months ago, and the highest ratio of its kind in recent years.

Almost half of those polled (49.3%) thought that the economy would remain unchanged, while those predicting a deteriorating climate accounted for 15.4%--a drop of 12.3 percentage points from the 27.7% posted by the previous survey.

Of the responding enterprises, 77.2% expressed dissatisfaction with the government`s performance over the past year and 55.3% hoped that the government would soon accomplish the long-discussed three direct links between the two sides of the Taiwan Strait, edging up 0.9 percentage points. Those hoping for a competent and clean government made up 43.3%, up 7.3 percentage points; an equal percentage wanted the government to control commodity prices.

A sizable 72.7% of the companies polled in the survey expressed the belief that the new government, which officially took office on May 20, could create an improved business environment. Small- and medium-sized enterprises-those with NT$100-500 million (US$3.23-16.13 million at NT$31:US$1) in capital--professed the highest confidence in the new government, with 77.8% of them believing that it is better than the one it replaced. Of the companies capitalized at NT$500 million (US$16.13 million) to NT$2 billion (US$64.52 million), the percentage was 75.2%; of those with more than NT$2 billion (US$64.52 million) in capital, the figure was 71.9%; and of those with capital of less than NT$100 million (US$3.23 million), the ratio was only 62.4%.

The Scourge of Rising Prices

Of the companies polled, 70.5% gave rising raw materials prices as the No. 1 factor that will affect their operations in the second half of the year. This was the sixth survey in a row to give this factor top billing, with the percentage rising from 47.1% in the first half of 2006. Among companies capitalized at less than NT$1 billion (US$32.26 million), 74.6% said that they would be influenced by soaring material prices; among those with more than NT$2 billion (US$64.52 million) in capital, just 60.4% did so. This indicates that bigger enterprises are less influenced by price hikes than smaller ones.

The global and U.S. economy was given as the No. 2 factor that will influence the operations of enterprises in the second half of the year, with the percentage or respondents giving this response rising 9.9 points from the previous survey to reach 51.7%. The No. 3 factor was given as energy, with a percentage of 41.3%.

Nearly 70% of the enterprises covered in the survey said that soaring energy and commodity prices have pushed up manufacturing costs and made their operations more and more difficult. Those capitalized at NT$100-500 million (US$3.23-16.13 million) showed the highest percentage of this response, at 87.4%, while those with more than NT$2 billion (US$64.52 million) in capital had a much lower 42.3%. This implies that large enterprises are better able to handle such problems than their smaller counterparts.

By industry, 59.8% of the enterprises in the information technology (IT) and electronics industry predicted a better economic climate in the second half, followed by services with 41.2%, transportation vehicles 37.6%, retail and department stores 35.7%, metal products 35.5%, and machinery and related equipment 35.0%.

The industries that foresee a worse business climate in the second half include paper products, rubber products, and garments (all with percentages above 50%), textile products with 43%, and plastic products with 42.9%.

According to Chen Tien-chih, chairman of the Cabinet-level Council for Economic Planning and Development (CEPD), the survey shows that the hopes of domestic enterprises and the goals of the new government`s policy are the same: realization of the three direct links, formation of a capable and clean administration, control of commodity price inflation, and expansion of investment in public projects.

Chen says that the economic climate in the second half will turn better following the inauguration of direct weekend charter flights across the Taiwan Strait on July 4, the boost to the market that will be provided by the arrival of Chinese tourists, and government moves to increase internal demand. In addition, the government is mapping out measures to stabilize commodity prices and avoid inflation.

However hard the government may try to revitalize the economy, there is little it can do about the soaring oil prices that are destroying economic growth all over the world. Chen urges the island`s people to adapt to the era of soaring prices by altering their lifestyles and adapting to more frugal living.
(by Judy Li)