Taiwan Economy to Fall Into Recession on Export Slump

By Tim Culpan and Chinmei Sung

Nov. 20 (Bloomberg) -- Taiwan’s economy will sink into a recession this year after shrinking in the third quarter for the first time since 2003, the government said.

Gross domestic product contracted 1.02 percent from a year earlier, compared with a revised 4.56 percent gain in the previous three months, the statistics bureau said in a statement in Taipei today. The bureau forecast the economy will shrink 1.73 percent this quarter.

Taiwan’s Cabinet announced last night plans to spend NT$483 billion ($14 billion) over four years to spur growth after overseas shipments tumbled last month and as job cuts damp consumer spending. Across Asia, the global financial crisis has tipped Japan, Singapore and Hong Kong into recession.

“The negative numbers could continue into the first half of next year because the U.S. is looking at such a large contraction,” said Cheng Cheng-mount, chief economist for Taiwan at Citigroup Inc. “The best the government can do is to minimize the damage, but they can’t avoid it.”

The government cut today its forecast for next year’s growth to 2.12 percent from 5.08 percent. It slashed this year’s estimate to 1.87 percent from 4.3 percent.

The technical definition of a recession is two consecutive quarters of negative growth. The contraction was the first since a deadly epidemic of SARS, severe acute respiratory syndrome, in 2003. Taiwan’s most recent recession was in 2001.

Waning Export Demand

Exports will decline 9.59 percent next year after gaining 8.17 percent in 2008, the statistics bureau said. Inflation will slow to 0.37 percent from 3.64 percent, it forecast.

Export orders, an indicator of shipments in one to three months, advanced in September by the least in six years. Shipments fell last month by the most since February 2005 as demand waned in mainland China.

Taiwan companies’ customers, including Dell Inc., the world’s second-largest computer maker, and Intel Corp., the largest chip manufacturer, say the global economic slowdown will deepen, hurting sales.

Fuel costs, which peaked during the quarter, also curbed growth in the island, which imports 99 percent of its energy needs. Crude oil has fallen 64 percent from a record of $147.5 a barrel on July 11.

‘Economic Tsunami’

Taiwan Power Co., a monopoly grid operator, expects electricity demand to increase this year at the slowest pace in seven years because of the global recession and higher prices.

“We’re in this economic tsunami, which is prompting technology companies to cut output,” Chief Engineer Tu Yueh- yuan, said in an interview yesterday. “It was just miserable for industrial users in October.”

Unemployment is at a three-year high and the key Taiex stock index is down 52 percent this year, damping consumer sentiment and spending. Nan Shan Life Insurance Co. plans to cut its staff of 4,700 by at least 7 percent to reduce costs, the company said Nov. 19.

Private consumption will fall 0.3 percent this year before increasing 1.86 percent in 2009 because of the boost from government spending, the statistics bureau said.

Plans to spur growth include handing out NT$3,600 in shopping vouchers to each citizen by the end of January. The move will pump NT$83 billion into the economy and be supplemented by NT$100 billion a year in public works and investment-promotion projects.

The measures may add 1.64 percentage points to economic growth next year, according to the Cabinet. Without the spending plan, the statistics bureau would’ve forecast an expansion of only 0.53 percent in 2009, Shih Su-mei, the island’s top statistician, said at today’s briefing.

Taiwan revised last year’s economic growth to 5.70 percent from 5.72 percent and the 2006 expansion to 4.8 percent from 4.89 percent.

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