Taiwan Economy Shrinks for First Time since 2009 on Exports

Economy of Taiwan Weakened - Global Financial Crisis

The economy of Taiwan weakened on a yearly basis for the first time since the global financial crisis, as a fall in exports and an inactive global recovery pulled on consumption. According to preliminary data provided by the statistic bureau recently, the product of gross domestic fell by 1.01% during the three months through September from a year earlier.

This compares with 0.52% growth initially reported in the earlier quarter with the 0.5% drop expected by the median estimate in a Bloomberg survey of economists. Taiwan’s exports seem to be sliding as the economic growth in the best location of China has slowed more to a six year low.

This had begun to curb domestic consumption last quarter that has marked the biggest slide for local shares since 2011 in the midst of Yuan’s stock devaluation in August. Economists are optimistic that the growth is likely to return to positive territory this quarter as U.S and Chinese demand tends to recover, restraining room for another rate cut in December this year.

An economist at DBS Group Holdings Ltd, in Singapore, Ma Tieying commented that `demand was poor in China and emerging markets in the third quarter, together with volatility in global markets accompanied with Yuan devaluation affected the stock performance and confidence of the consumer.

Government Unveiled Consumption Incentive Package

He added that the economy needs to bottom out in the fourth quarterand the weakening in export orders which narrowed in September, should enhance manufacturing. Recently the government had unveiled a NT$4.08 billion consumption incentive package after the announcement plans in July, to improve the infrastructure investment and credit.

Wai Ho Leong, economist of Barclays Plc. had mentioned in a note that, the new incentive would possibly have a little effect with regards to its size. The domestic consumption which had extended gradually during the past two years amidst fluctuations in exports had grown by 0.89% last quarter as against 2.85% in the previous year.

Benchmark rate was cut by central bank for the first time since 2009 in September, quoting high rates and a negative output gap. Besides, considering the next decision in December is that, if the Federal Reserve tends to raise the rates that month that would also increase Taiwan’s risk of outflows if it agrees to ease the policy.

Poor Economic Outlook – Markets Affected

Leong stated that the growth seems to have bottomed in the third quarter and would extend discreetly in the fourth on the back of a late year pickup in external demand. He also quoted steadier stocks and spending earlier to January’s presidential elections.

He added that in the absence of a clear systemic shock and the Fed considering a December rate hike, they are expecting the central bank to keep its benchmark interest rate unchanged at its December meeting. An economist at Capital Securities Corp in Taipei, Hsu Kuo,said that in the midst of poor economic outlook

Taiwan’s intermediary exports to China as well as other emerging markets are affected. US intended to raise rate but had not done so, which indicates recovery in the world’s largest consumer nation is still weak according to Bloomberg.