July 31 (Bloomberg) -- Taiwan’s economy expanded at a faster-than-estimated pace in the second quarter as domestic consumption improved, even as a slowdown in China damps the outlook for the island’s exports.
Gross domestic product rose 2.27 percent from a year earlier after increasing 1.67 percent in the first quarter, the statistics bureau said in a preliminary report in Taipei today. The median estimate of 23 economists in a Bloomberg News survey was 2.1 percent.
The pick-up in growth came as the island faces increasing risks from China, its biggest trading partner, which recorded a second straight quarterly slowdown. Chinese Premier Li Keqiang’s efforts to rein in a record credit boom and curb housing prices increase the risk of missing the year’s expansion goal, dragging on the global recovery and hurting demand for Taiwan’s products.
In the second half, Taiwan’s “recovery will still be at a very slow pace because of the weakness in external demand,” said Ma Tieying, an economist at DBS Group Holdings Ltd. in Singapore. “The slowdown of China is a major risk facing Taiwan because the economy is largely supported by China.”
The benchmark Taiex stock index slipped 0.3 percent at 9:51 a.m. local time. The Taiwan dollar gained 0.2 percent to NT$29.962 against the U.S. currency, according to Taipei Forex Inc. It has declined about 3 percent this year.
Taiwan in May lowered its official forecast for growth this year to 2.4 percent from 3.59 percent. The economy expanded a seasonally-adjusted 0.59 percent in the second quarter from the previous quarter, today’s report showed.
Private consumption increased 1.61 percent in the second quarter from a year earlier, compared to a 0.35 percent gain in the previous period. Manufacturing rose 1.22 percent from a year earlier, slower than a 1.54 percent pace in the first quarter.
President Ma Ying-jeou said in an interview last week that he ruled out driving down the Taiwan dollar to boost exports following the currency’s rally against the yen. He said the government aims for growth of at least 2 percent this year.
Overseas shipments, which are equivalent to about two-thirds of gross domestic product, rose a better-than-expected 8.6 percent in June from a year earlier, even as industrial output slipped for a fifth straight month. Export orders, an indication of shipments in the next one to three months, also fell for a fifth month in June.
Taiwan earlier let insurers invest in infrastructure projects and created a NT$1 billion ($33 million) fund to channel money to companies in a bid to spur growth. The central bank held the benchmark interest rate at 1.875 percent for an eighth straight meeting in June, the longest period of inaction.
The government is considering tightening luxury-tax rules to narrow the gap between property prices and personal incomes to boost consumption. It is also seeking closer trade ties with other countries to reduce its reliance on China, and earlier this month signed an economic cooperation agreement with New Zealand, its first such deal with a developed country.
To contact the reporter on this story: Chinmei Sung in Taipei at firstname.lastname@example.org
To contact the editor responsible for this story: Shamim Adam in Singapore at email@example.com