Taiwan Economy Probably Grew the Slowest in Five Years on Trade

By Tim Culpan

Nov. 20 (Bloomberg) -- Taiwan's economy probably grew at the slowest pace in five years in the third quarter as shipments of electronics slowed and fuel costs rose.

Gross domestic product advanced 0.8 percent from a year earlier in the three months ended Sept. 30, slumping from 4.3 percent growth in the prior period, according to the median estimate of 17 economists surveyed by Bloomberg. The report is due about 4:30 p.m. today in Taipei.

The slowdown may worsen as companies such as Nan Shan Life Insurance Co. cut staff, hurting consumer demand, which accounts for more than half of the economy. Taiwan's Cabinet is boosting spending to stimulate domestic growth and offset falling exports that are equivalent to 82 percent of the island's output.

``Third quarter numbers really don't look very hopeful, private consumption and external trade were both quite weak,'' said Alan Liao, an economist at Chinatrust Financial Holding Co. in Taipei. ``This quarter is not much more optimistic as we start to look at the export orders.''

The slowest economic growth since a contraction in the second quarter of 2003 has driven the island's unemployment rate to a three-year high and local consumption is dropping amid falling exports from companies such as Taiwan Semiconductor Manufacturing Co. and AU Optronics Corp.

``Over the last couple of weeks, many of them are either looking to cut back on capacity spending next year or, if not, many of them will actually slow down new hirings,'' said Tony Phoo of Standard Chartered Bank in Taipei, one of two economists who forecast a contraction in gross domestic product for the period. ``This will have repercussions on the real economy, especially on spending.''

Export Orders

Taiwan companies' customers including Dell Inc., the world's second-largest computer maker, and Intel Corp., the largest chip manufacturer, say the economic slowdown will deepen, hurting sales. Export orders, an indicator of actual shipments in one to three months, advanced 2.8 percent in September, the slowest in six years.

Higher energy prices also detracted from growth as crude oil advanced to a record in July. Taiwan imports 99 percent of its energy needs.

Taiwan's current-account surplus probably dropped to $1.3 billion for the third quarter, the lowest in three years, according to the median of six economist estimates. The current account balance, which measures the flow of goods, services and investment income, will be published around 4:10 p.m. today.

The drop in domestic and external demand has driven Taiwan's Taiex stock index down 43 percent since the start of the third quarter, matching the 42 percent drop in the MSCI Asia-Pacific Index.

Forecast Cut

Taiwan is expected to cut its 2009 GDP forecast from its current 5.08 percent estimate after Premier Liu Chao-shiuan said Oct. 22 that the weakening global economy ``doesn't look likely to recover in the short term.''

To help boost domestic spending and offset the impact of job cuts, the government will hand out NT$3,600 in shopping vouchers to each citizen by the end of January. The move will pump NT$83 billion ($2.5 billion) into the economy and will be accompanied by other measures, Liu said this week.

In a bid to leverage the growth of China, the world's fastest-growing major economy, Taiwan signed an accord Nov. 4 that will end a nearly 60 year ban on regular direct flights and shipping between the two sides. China accounts for 40 percent of Taiwan's exports.

``Any expectations for an immediate boost coming out of cross-strait ties are premature,'' said Standard Chartered's Phoo said. ``Both sides will still need some time to get used to one another.''

The following is a table of economists' estimates for third-quarter GDP growth from a year earlier, and the current account balance for the period:

===========================================================
11/19/2008                     Current       GDP
                              Account     Qtrly
                                 $mil       YoY
===========================================================

Date of Release                20-Nov.   20-Nov.
Observation Period                  3Q        3Q
----------------------------------------------------------
Median                            1300      0.80%
Average                           1563      0.81%
High Forecast                     3280      2.80%
Low Forecast                       395     -1.86%
Number of Participants               6        17
Previous                          6493      4.32%
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================================================================
11/19/2008                     Current       GDP
                              Account     Qtrly
                                 $mil       YoY
================================================================
Action Economics                  1000      2.00%
Capital Economics                 ---       0.00%
Chinatrust Commercial Bank        2100      0.80%
DBS Group                         ---       0.80%
Forecast Singapore                 395      1.05%
Ideaglobal                        ---       1.10%
ING Bank                          ---       2.10%
Japan Center for Intl Financ      1200      0.20%
KGI Securities                    ---       0.50%
Mega Securities                   ---      -1.86%
Moody's Economy.com               ---       2.80%
Nomura International(HK)          ---       0.70%
Reuters IFR                       ---       1.30%
SinoPac Holdings                  ---       1.63%
Standard Chartered Bank           1400     -0.40%
Taiwan Securities Investment      3280      0.76%
UBS                               ---       0.20%
================================================================

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.