Taiwan's GDP Growth Probably Slowed on Spending, U.S. Exports

By Janet Ong and Chinmei Sung

Aug. 22 (Bloomberg) -- Taiwan's economy probably grew at the slowest pace in more than a year last quarter as consumer spending cooled and U.S. customers bought fewer laptops, flat- screen televisions and mobile phones.

Gross domestic product expanded 4.54 percent from a year earlier, easing from a 6.06 percent gain in the first quarter, according to the median of 14 economists surveyed by Bloomberg News. The report is due about 4:30 p.m. in Taipei today.

The weakest economic growth since the start of 2007 may have driven up the jobless rate to a three-month high in July as companies pared hiring. Easing U.S. demand has slowed sales for Acer Inc. and Taiwan Semiconductor Manufacturing Co., while Marks & Spencer Group Plc said it will close three Taiwan stores as rising living costs damp spending by the island's consumers.

``The economy is facing growing headwinds and will slow sharply over the rest of this year,'' Rob Subbaraman, chief Asia economist at Lehman Brothers Holdings Inc. in Hong Kong, wrote in a report. ``There are growing signs of weakness in the tech sector, the linchpin of the economy. Consumption is weakening.''

The Taiex Index of stocks has declined 17 percent this year on concern slowing global growth will erode corporate earnings. Exports are equivalent to about 50 percent of the island's GDP.

Taiwan follows South Korea, Singapore and Japan in reporting a deteriorating economy because of faltering demand in the U.S., the region's largest overseas market.

Japan's economy, Asia's largest, shrank in the second quarter by the most since 2001. Singapore posted the weakest growth in five years and South Korea's economy expanded at the slowest rate in more than a year.

Rising Unemployment

Taiwan's unemployment rate rose to 3.9 percent in July after some companies halted operations, according to the median estimate of 12 economists surveyed by Bloomberg. The statistics bureau releases the jobless report at 4 p.m. today.

The island's intercity bus operator Dragon Bus Corp. suspended its services for a year because of high oil prices. Marks & Spencer last month said it will shut three Taiwan stores it runs with President Chain Store Corp., less than 18 months after the U.K.'s largest clothing retailer entered the market.

``Downside risks have intensified. The economy will likely continue decelerating in the second half,'' said Cheng Cheng- mount, chief economist at Citibank in Taipei. ``We expect policy makers to shift focus from upside inflation risk to downside growth risk in the second half.''

The central bank raised its interest rate to a seven-year high of 3.625 percent on June 26 to damp inflation. That marked the 16th consecutive quarterly increase in borrowing costs.

Inflation accelerated to 4.97 percent in June, the fastest pace in eight months, as fuel and food costs climbed.

Last Increase

Citibank's Cheng forecasts the central bank will raise its rate by 12.5 basis points in September and that will be the last increase for the year as policy makers turn their attention to the slowing economy.

Export orders grew at the weakest pace in 16 months in June as demand cooled in the U.S. and Europe. Orders are an indication of shipments over the next one to three months.

``Electronics shipments across the region have slowed and we expect further weakness to come through,'' said Frederic Neumann, an economist at HSBC Global Markets in Hong Kong.

Taiwan Semiconductor, the world's largest custom-chip maker, and computer maker Acer both reported slower sales in the U.S. in the second quarter.

As global demand eases, rising living costs and declining share prices have damp confidence and discouraged Taiwanese consumers from spending. Retail sales fell 0.4 percent in June from a year earlier, the first decline since January 2007.

The Taiwan government in July announced subsidies for low- income families to alleviate the impact of rising prices and help bolster domestic demand.

The following is a table of economists' estimates for economic growth in the second quarter from a year earlier, and growth over 2008:

==================================================
8/20/2008                          GDP       GDP
                                    2Q
                                   YoY%     2008
==================================================
Date of Release                 22-Aug    22-Aug
--------------------------------------------------
Median                            4.5%      4.6%
Average                           4.7%      4.5%
High Forecast                     5.6%      5.1%
Low Forecast                      4.0%      3.5%
Number of Participants              14        12
--------------------------------------------------
Action Economics                  4.5%      4.5%
CFC Seymour                       4.5%      4.3%
Chinatrust Commercial Bank        5.0%      4.9%
DBS Group                         4.5%      4.7%
HSBC                              4.6%      4.9%
Ideaglobal                        4.8%      ---
Japan Center for Intl Finance     5.1%      4.9%
KGI Securities                    4.5%      4.4%
Reuters IFR                       5.6%      5.1%
SinoPac Holdings                  4.6%      4.6%
Standard Chartered Bank           4.1%      3.5%
Sumitomo Mitsui Banking           4.0%      3.9%
Taiwan Securities Investment      4.1%      4.3%
UBS                               5.4%      ---
==================================================

To contact the reporters on this story: Janet Ong in Taipei at jong3@bloomberg.net; Chinmei Sung in Taipei at csung4@bloomberg.net.