Taiwan Economy Shrinks for First Time Since 2009 on Exports

  • Third-quarter GDP contracts 1.01%, missing economist estimates
  • Analysts expect recovery in fourth quarter as demand improves

Taiwan’s economy contracted on a yearly basis for the first time since the global financial crisis as a slump in exports and a sluggish global recovery dragged on consumption.

Gross domestic product fell 1.01 percent in the three months through September from a year earlier, according to preliminary data released by the statistics bureau Friday. That compares with 0.52 percent growth originally reported in the previous quarter and the 0.5 percent drop projected by the median estimate in a Bloomberg survey of economists.

Taiwan’s exports are sliding as economic growth in the top destination of China slowed further to a six-year low. This started to curb domestic consumption last quarter, which also marked the biggest slide for local shares since 2011 amid the yuan’s shock devaluation in August.

Still, economists say growth is likely to return to positive territory this quarter as U.S. and Chinese demand recovers, limiting room for another rate cut this year in December.

"Demand was poor in China and emerging markets in the third quarter, and volatility in global markets and yuan devaluation also affected stock performance and consumer confidence," said Ma Tieying, an economist at DBS Group Holdings Ltd. in Singapore. "The economy should bottom out in the fourth quarter. The decline in export orders narrowed in September, which should boost manufacturing."

Recovery Signs

The government unveiled a NT$4.08 billion ($125 million) consumption stimulus package on Friday, after announcing plans to boost infrastructure investment and credit in July. The new stimulus will probably have a small effect given its size, Barclays Plc economist Wai Ho Leong wrote in a note.

Domestic consumption, which expanded steadily in the past two years even amid fluctuations in exports, grew 0.89 percent last quarter, compared with 2.85 percent in the prior period.

The central bank cut the benchmark rate for the first time since 2009 in September, citing high real rates and a negative output gap. Also weighing on its next decision in December is whether the Federal Reserve raises rates that month, which would increase Taiwan’s risk of outflows should it decide to ease policy.

"Growth is likely to have bottomed in the third quarter and will expand modestly in the fourth on the back of a late-year pickup in external demand," said Barclays’ Leong, who also cited steadier stocks and spending before January’s presidential elections. "In the absence of a clear systemic shock and with the Fed considering a December rate hike, we expect the central bank to keep its benchmark interest rate unchanged at its December meeting."

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