Taiwan has tumbled into recession, suffering a record annual fall in output at the end of last year to become east Asia’s worst-performing economy.
Official data yon Wednesday showed Taiwan’s gross domestic product shrank 8.36 per cent year-on-year in the last quarter of 2008, a bigger drop than analysts had expected and that underscored the exposure of Asian exporters to the slump in world demand.
The figures spurred the Taiwanese central bank to make an unexpected 0.25 percentage point cut in interest rates, bringing its key interest rate to a record low of 1.25 per cent. The economy has contracted for two straight quarters, meeting a common definition of recession.
Yen Tzung-ta, the bank’s top economist, said that “by cutting rates, we want to send a signal: the central bank will maintain a loose money policy”.
Taiwan’s woes spell further gloom for other economies in the region, particularly that of China, where Taiwanese manufacturers have shifted much of their output in recent years and where many of the island’s manufactured electronics parts are shipped for final assembly before being sold to consumers in the west.
According to the International Labour Organisation, Asia will see the number of jobless people rise by up to 23.3m in 2009, three times more than the estimate of 7.2m last month as the region reels from the recession in the world’s richest countries.
Taiwanese officials said that its economy, Asia’s sixth biggest, would deteriorate further throughout the first half of this year. They forecast a contraction of nearly 3 per cent in 2009 after earlier projecting growth of more than 2 per cent.
Exports are expected to drop by a fifth this year, with consumer prices projected to fall sharply too.
“There is little hope of returning to positive economic growth until the fourth quarter of this year,” said Tsai Hung-kun, of the national statistics agency.
While suggesting that exports would begin to rebound at the year end, he said the government had underestimated the degree to which exports suffered when it predicted three months ago that the economy would grow by more than 2 per cent this year.
“Taiwan is particularly affected by the global economic climate because of [its] concentration in export products,” the central bank said.
The latest figures heap pressure on President Ma Ying-jeou, who was elected on a platform of economic growth last year but whose popularity has fallen.
The government has already announced a T$500bn (US$14.4bn), two-year stimulus package, which includes infrastructure projects, measures to boost employment and hand-outs of T$85bn in consumer vouchers.
Mr Tsai said the government spending would boost GDP by 2.77 per cent this year. But economists doubted the extent to which the measures would help the economy and said Taiwan remained vulnerable to weak global demand.
“[The measures] will help but not significantly because they are not of a big enough scale,” said Cheng Cheng-mount, chief economist at Citibank in Taipei. “There is still a lot of room for further government spending, as Taiwan’s debt-to-GDP ratio is only around 30 per cent.”
Source: http://www.ft.com/cms/s/0/d2287e94-fd74-11dd-a103-000077b07658.html
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