Taiwan’s Economy Probably Posted Record Contraction

By Janet Ong

Feb. 18 (Bloomberg) -- Taiwan’s economy probably shrank at the fastest pace on record last quarter as a slump in exports pushed the island into its first recession since the technology bubble burst in 2001.

Gross domestic product plunged 6.82 percent from a year earlier, accelerating from a 1.02 percent decline in the previous three months, according to the median estimate of 18 economists surveyed by Bloomberg News. That would be biggest contraction since records began in 1952. The statistics bureau releases the report at 4.30 p.m. in Taipei today.

The island joins Japan, Singapore and Hong Kong in recession as the global slowdown cuts demand for Quanta Computer Inc.’s laptops and Taiwan Semiconductor Manufacturing Co.’s computer chips. Asia’s slump has increased pressure on policy makers to expand relief measures, with Taiwan’s Cabinet last week approving NT$150.6 billion ($4.4 billion) of infrastructure spending for 2009.

“Taiwan is among the most exposed economies in Asia,” said Frederic Neumann, a Hong Kong-based economist at HSBC Global Research. “The island’s economy is unlikely to see a significant rebound until consumers in the West decide to go out and spend again.”

The local currency fell to NT$34.682 versus the U.S. dollar today, the lowest since June 2003. The Taiex stock index dropped 2.5 percent this year adding to a 46 percent loss in 2008.

Expansion Ends

Taiwan has grown its economy by a third since the 2001 recession by boosting trade and investment links with China. Many electronics makers send parts to the mainland that are re- exported as finished computers, televisions and mobile phones to consumers in the U.S. and Europe.

Overseas shipments, which are equivalent to 70 percent of GDP, dropped a record 44 percent in January as the global economic slump worsened and eroded growth in China.

Chi Mei Optoelectronics Corp., Taiwan’s second-biggest maker of liquid-crystal displays, says it will reduce 2009 capital spending by 72 percent from last year as orders decline.

Exporters including Hon Hai Precision Industry Co., which makes iPhones for Apple Inc., and Wintek Corp. are cutting workers, leading to a slowdown in domestic demand. The jobless rate rose to 5.01 percent in December, the highest since 2003.

Retail sales tumbled 9.8 percent in December from a year earlier, the biggest decline since records began in 1999.

Corporate Losses

Quanta Computer, the world’s largest maker of notebook computers, said this week shipments will decline more than 30 percent this quarter. Taiwan Semi in December forecast its first quarterly loss since 1990 as customers including Texas Instruments Inc. reduce orders.

To revive the economy, the government plans stimulus spending of NT$858.5 billion over four years, equivalent to about 6 percent of GDP, on infrastructure projects, consumer handouts and tax cuts. It distributed NT$82.9 billion worth of shopping vouchers last month.

Taiwan’s central bank has cut borrowing costs six times since late September, paring the benchmark rate by 2.125 percentage points to 1.5 percent.

The bank may reduce its interest rate another 50 basis points in March, said Cheng Cheng-mount, an economist at Citigroup Inc. in Taipei.

China Rebound

“We expect real GDP to be negative in the first quarter before turning to a moderate growth in the fourth quarter,” said Cheng. “The key to a recovery hinges on China, which is Taiwan’s greatest export market.”

There are signs a 4 trillion yuan ($586 billion) stimulus package is taking effect in China.

The world’s third-biggest economy may grow 6.6 percent in the second quarter after slowing to 6.3 percent in the three months to March 31, the weakest pace since 1999, according to a Bloomberg survey.

China and Taiwan, governed separately since 1949, on Dec. 15 ended a six decade-ban on direct shipping, air and postal links. China on Dec. 21 offered 130 billion yuan of loans for Taiwan companies operating on the mainland.

Following are forecasts for fourth-quarter GDP from a year earlier:

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                                 4Q
Firm                            YoY%
---------------------------------------------
Median                        -6.82%
Average                       -6.64%
High                          -3.00%
Low                          -10.52%
Number of Estimates               18
---------------------------------------------
Barclays Capital              -6.50%
Capital Economics            -10.00%
Citi                          -3.40%
DBS Group                     -9.00%
Forecast Ltd.                 -3.00%
HSBC                          -7.00%
ING Groep NV                  -7.80%
Japan Center for Intl Fin.    -8.60%
Mega Securities               -6.64%
Moody’s Economy.com          -10.52%
Morgan Stanley                -9.00%
Nomura Securities             -4.50%
Polaris Securities            -7.20%
Reuters IFR                   -5.50%
SinoPac Holdings              -5.23%
Standard Chartered Bank       -3.40%
Taiwan Securities Investment  -7.50%
UBS Securities                -4.70%
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To contact the reporters on this story: Janet Ong in Taipei at jong3@bloomberg.net