Taipei: Taiwan’s economy shrank for the first time in six years in the July-September quarter, dragged down by worse-than expected exports and domestic spending, the government said today. The drop of 1.01 per cent from a year earlier missed forecasts by the Directorate General of Budget, Accounting and Statistics, which had predicted GDP growth of 0.10 per cent year-on-year in the third quarter.
It was also much steeper than the 0.5 per cent decline forecast by a Bloomberg survey of economists. On the heels of the result, Taiwan announced it would pour Tw dollar 4.08 billion (USD 125.5 million) into the economy between November and February to boost consumer spending.
There will be subsidies for home appliances and new mobile phones, as well as promotions for Internet shopping and domestic travel. “The measures… encourage businesses to offer greater promotions and discounts with help from the government,” the executive yuan, or cabinet, said in a statement. It added the move was designed to “improve people’s purchasing appetite” and spark a retail boom.
Taiwan has been struggling to spur growth in its export-focused economy, which has suffered with a slow recovery from the global financial crisis while also facing greater competition in the key tech sector. “The deterioration of the external economic environment has started to affect domestic demand, causing consumer confidence and the employment rate to fall,” Claire Huang, a Hong Kong- based economist at Societe Generale AG, said before the release.
However, Huang added a second consecutive quarter of contraction — meaning a technical recession — was unlikely. “Continued recovery in developed economies such as Europe and the US should boost demand in the fourth quarter,” she said. The government said China’s domestic supply chain was “crowding out” Taiwan in a statement Friday. Taiwan’s exports in the third quarter plummeted 13.86 per cent, including a 7.88 per cent decline in electronics.
The central bank cut interest rates in September, the first time in four years, to bolster sluggish demand, and in August authorities slashed their growth forecast for the full year to 1.56 per cent, from an earlier estimate of 3.28 per cent. The weakness in Taiwan comes as China’s economy suffers its worst annual growth rates in a quarter of a century. China is Taiwan’s biggest export market, accounting for 25 per cent of products shipped, while exports to the United States make up just 11.1 per cent of the total, according to Moody’s Analytics.
“The biggest factor pushing down exports is weak Chinese demand,” Moody’s economist Emily Dabbs said. “Taiwan’s inability to sign trade agreements with countries such as the US is hurting its export competitiveness.” Increased competition from China’s tech industry is putting pressure on the island. Leading Taiwanese firms such as Foxconn and TSMC are key suppliers to tech giant Apple and have benefited from the launch of its new smartphone models.
