Taiwan economic contraction eases in second quarter

Taiwan's economy shrank 7.5 percent in the second quarter from a year earlier, improving from a record contraction in the previous quarter and prompting the government to raise its forecast for 2009. In a further sign of a gradual recovery, gross domestic product rose 20.69 percent in the April-June period on a seasonally adjusted, annualised basis, its first growth in over a year.
The government said in its first release of such series on Thursday. "It suggests a 10 percent quarter on quarter growth. I would say this is not surprising at all because you had exports and industrial production that increased significantly in the second quarter. It is mostly external driven and partly driven by inventory," said Qian Wang, economist at J.P. Morgan in Hong Kong.
Like the rest of Asia, economists expect Taiwan's economy to improve through the rest of the year, with growth likely to return in the fourth quarter, which would be the first expansion since the second quarter of 2008. The 7.5 percent drop in GDP was in line with analysts forecast in a Reuters poll but still bigger than South Korea's 2.5 percent fall, Singapore's 3.5 percent decline and Hong Kong's 3.8 percent drop.
For the full year, Taiwan's economy is now expected to contract 4.04 percent, its worst performance on record but better than its May forecast for a 4.25 percent fall, the statistics agency said. The weak economy has prompted the central bank to cut interest rates seven times to a record low of 1.25 percent, though it kept rates steady in March and June partly due to signs that the global economy was bottoming out.
The economy is expected to grow 3.92 percent next year, it said, with reconstruction from Typhoon Morakot, which triggered the island's worst floods in about 50 years, likely to boost government spending. A pickup in external demand will also help the export-reliant economy. Taiwan's companies make 80 percent of the world's laptop computers and more than 40 percent of its liquid crystal displays, or LCDs, used in flat-screen TVs. It is also home to the world's top two contract chip makers, TSMC and UMC.
With the tech sector leading other industries in a global recovery, Taiwan's exports are expected to starting seeing growth in the fourth quarter. On Thursday, the central bank said Taiwan's second-quarter current account surplus was $9.9 billion, up from a revised $7 billion a year earlier. Taiwan's balance of payments recorded a surplus of $11.82 billion in the second quarter.