AFP - Taiwan’s economy suffered its first quarterly shrinkage since the height of the global financial crisis, hit by worse-than-forecast exports as key trading partner China suffers a painful growth slowdown.
An increase in competition in the technology sector, a crucial driver of the island’s growth, also added downward pressure in the third quarter.
The economy shrank 1.01 percent year-on-year in July-September, its first contraction since 2009 and missing forecasts by the Directorate General of Budget, Accounting and Statistics, which had predicted growth of 0.10 percent. It was also much steeper than the 0.5 percent decline forecast by a Bloomberg survey of economists.
“The deterioration of the external economic environment has started to affect domestic demand, causing consumer confidence and the employment rate to fall,” Claire Huang, a Hong Kong- based economist at Societe Generale AG, said before the release.
However, Huang added a second consecutive quarter of contraction -- meaning a technical recession -- was unlikely. “Continued recovery in developed economies such as Europe and the US should boost demand in the fourth quarter,” she said.
aiwan has been struggling to spur growth in its export-focused economy, which has suffered with a slow recovery from the global financial crisis while also facing greater competition in the key tech sector.
“Inventories of electronic products are still moving slowly,” the government said in a statement Friday. “In addition, China’s domestic supply chain is having the effect of crowding out” Taiwan.
Taiwan’s exports in the third quarter plummeted 13.86 percent, including a 7.88 percent decline in electronics.
The central bank cut interest rates in September, the first time in four years, to bolster sluggish demand, and in August authorities slashed their growth forecast for the full year to 1.56 percent, from an earlier estimate of 3.28 percent.
The weakness in Taiwan comes as China’s economy suffers with its worst annual growth rates in a quarter of a century.
China is Taiwan’s biggest export market, accounting for 25 percent of products shipped, while exports to the United States make up just 11.1 percent of the total, according to Moody’s Analytics.
“The biggest factor pushing down exports is weak Chinese demand,” Moody’s economist Emily Dabbs said.
“Taiwan’s inability to sign trade agreements with countries such as the US is hurting its export competitiveness. “If the economy cannot diversify its export base, it will be left behind.” Increased competition from China’s burgeoning tech industry is putting particular pressure on the island.
Leading Taiwanese firms such as Foxconn and TSMC are key suppliers to tech giant Apple and have benefited from the launch of its new smartphone models.
But China has been pushing to grow its own tech industry with the development of domestic smartphone brands and homegrown hardware, including chips.