World Economy

Taiwan GDP Contracts More Than Expected

Taiwan GDP Contracts More Than ExpectedTaiwan GDP Contracts More Than Expected

Taiwan’s trade-reliant economy shrank by a worse-than-expected 0.84% 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 like Taiwan which sell a lot of popular, higher-end products such as smartphones, CNBC reported.

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

On a seasonally adjusted, annualized basis, the economy did manage to eke out 0.76% growth, but that also signaled a sharp deceleration from the 2.18% rise in the final quarter of 2015, the statistics agency said on Friday.

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

Monetary policy is already loose after three rate cuts since late September. “That is not enough. Taiwan needs to depreciate the currency,” Pang said.

Apple Inc on Wednesday reported it’s first-ever 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% year-on-year fall. For 2016 as a whole, the Taiwanese house is expecting GDP to grow a mere 0.3%.

The government will issue revised GDP figures in two to three weeks and provide a fresh outlook at that time.

The new government of Tsai Ing-wen will officially take office on May 20 after she and her Democratic Progressive Party won landslide presidential and parliamentary elections in January.

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

More policy easing is likely, most economists say, in part to dampen strength in the local dollar, which is up 2% against the US dollar so far this year.