1. Taiwan economy shrinks more than expected in Q1, more rate cuts seen

Taiwan economy shrinks more than expected in Q1, more rate cuts seen

Taiwan's trade-reliant economy shrank more than expected in the first quarter as exports tumbled, pressuring the new government to come up with stimulus measures and cementing views the central bank will cut interest rates again in coming months.

By: | Taipei | Published: April 30, 2016 10:13 AM
Taiwan economy Taiwan’s trade-reliant economy shrank more than expected in the first quarter as exports tumbled, pressuring the new government to come up with stimulus measures and cementing views the central bank will cut interest rates again in coming months. (Reuters)

Taiwan’s trade-reliant economy shrank more than expected in the first quarter as exports tumbled, pressuring the new government to come up with stimulus measures and cementing views the central bank will cut interest rates again in coming months.

The island’s economy is clearly struggling to shake off last year’s recession as prolonged weakness in global demand weighs on Asia’s exporters, even those such as Taiwan which sell popular, higher-end products such as smartphones.

The 0.84 percent contraction in gross domestic product (GDP) in January-March from a year earlier was deeper than economists’ expectations of a 0.6 percent fall, and followed a drop of 0.52 percent in the fourth quarter of 2015.

“Recovery momentum is still extremely weak,” statistics agency official Sophia Wang said at a news conference on Friday after the preliminary data was released.

On a seasonally adjusted, annualised basis (SAAR), the economy grew 0.76 percent, but that was a sharp deceleration from the 2.18 percent rise in the final quarter of 2015.

Iris Pang, a senior economist for Greater China at Natixis in Hong Kong, said she has pencilled in an additional rate cut for 2016 and now expects two more cuts to bring the policy discount rate to 1.25 percent from its current 1.5 percent.

Policy is already loose after three cuts since September.

“That is not enough. Taiwan needs to depreciate the currency,” Pang said.

While the first quarter is a weak one traditionally for Taiwan’s exports of hi-tech goods, any chance of a recovery in the current quarter looks touch-and-go. Apple Inc on Wednesday posted its first decline in iPhone sales and a lower-than-expected revenue outlook, clouding the outlook for Taiwan’s technology giants which make a lot of the phone’s components.

Yuanta Investment Consulting expects second-quarter GDP to continue to contract and is forecasting a 0.3 percent year-on-year fall. For 2016 as a whole, the Taiwanese house is expecting GDP to grow a mere 0.3 percent.

The government will issue revised GDP figures in two to three weeks and provide a fresh outlook. Taiwan stocks fell more than 1 percent, pressured by the weak data and losses in overseas markets, but the local dollar ticked up.

LOSING STREAK GETTING LONGER

Pang said more fiscal stimulus is overdue. The new government won power in January, but only officially takes power on May 20. The outgoing government had rolled out a modest T$4.08 billion ($127 million) short-term plan late last year.

While Taiwan’s jobless rate has remained under 4 percent despite the long export slump, Friday’s data showed a worrying first-quarter drop in capital formation – which includes those from government and public works and private fixed investment.

It was the third quarter in a row that the economy has contracted on a year-on-year basis. It briefly slipped into recession in mid-2015 but managed some growth late in the year.

Governor Perng Fai-nan has said cutting interest rates may have limited impact given that Taiwan is an export-driven economy, but lower rates could help reduce strains on trade-related businesses and fend off speculative “hot money” inflows.

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