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

Taiwan's economy is clearly struggling to shake off last year's recession as prolonged weakness in global demand weighs on Asia's exporters.

Taiwan's trade-reliant economy has been hit hard by slowing global demand and a slowdown in China. AFP/Patrick Lin

TAIPEI: Taiwan's trade-reliant economy shrank by a worse-than-expected 0.84 per cent 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.

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

On a seasonally adjusted, annualised basis (SAAR), the economy did manage to eke out 0.76 per cent growth, but that also signalled a sharp deceleration from the 2.18 per cent 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 pencilled in an additional rate cut for 2016 and now expects two more cuts to bring the policy discount rate to 1.25 per cent from its current 1.5 percent.

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

While the first quarter traditionally is a weak one 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 reported its 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 per cent year-on-year fall. For 2016 as a whole, the Taiwanese house is expecting GDP to grow a mere 0.3 per cent.

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.
LOSING STREAK GETTING LONGER
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 per cent against the U.S. dollar so far this year.
"We believe the primary concern for (the central bank) is still capital flows," said ANZ senior economist Raymond Yeung.
He said capital inflows induced by further easing by other major central banks will keep Taiwan watchful of its financial markets.
Governor Perng Fai-nan has noted cutting interest rates may have limited impact on boosting economic growth given that Taiwan is an export-driven economy, though lower rates could help reduce the strains on trade-related businesses and fend off speculative "hot money" inflows.

- Reuters

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

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