Economic growth in Q2 slows to 0.64%
Rise greatly misses forecast of 3.37 percent as exports plunge
Taiwan’s economy grew at its slowest pace in three years in AprilJune, data showed yesterday, hammered by a plunge in its key export sector and falling demand in China.
The results underscore the challenge Taipei faces in diversifying from its traditional mainstays of electronics and hardware exports, as it tries to encourage tech innovation from smaller homegrown businesses as a way to boost the economy.
Growth came in at just 0.64 percent year on year in the sec- ond quarter, sharply down from 3.37 percent in the previous three months and badly missing a forecast of 3.05 percent, the Directorate General of Budget, Accounting and Statistics (DGBAS) said.
Compared with the previous three months, the economy shrank 7.65 percent.
Exports fell 9.81 percent as inventory of electronic products remained high and mainland China expanded supply chains within the mainland.
The soft reading came despite a 2.81-percent rise in private con- sumption, which beat expectations of a 2.75 percent increase.
DGBAS Expects 2.68% Growth
Wang Shu-chuan, a specialist with the DGBAS, said that if the agency only took into account the weaker- than- expected secondquarter GDP growth, Taiwan’s economy could be expected to grow 2.68 percent in 2015, lower than an expansion of more than 3 percent forecast by both the government and major think tanks.
But the actual result will depend on how the economy performs in the second half of this year, she said.
In May, the DGBAS cut its forecast for Taiwan’s GDP growth in 2015 to 3.28 percent from a previ- ous estimate of 3.78 percent, citing slower exports and private consumption growth.
The DGBAS will update its forecast on Aug. 14.
Wang said the global economy showed signs of slowing down in the second quarter as demand appeared to weaken, and inventories in the electronics industry remained high, hurting Taiwan’s exports, the backbone of the country’s economy.
Wang said mainland China’s efforts to build its own supply chain in the manufacturing sector also compromised demand for products from Taiwan in the April-June period.
Need for Economic Support
Analysts warned that the news highlights the need for the govern- ment to introduce measures to support the economy as it faces a general election in early 2016.
“It’s not only cyclical ... there are also structural factors,” said Wai Ho Leong, an economist at Barclays based in Singapore.
China’s increasing use of domestically produced goods “has reduced demand for Taiwan-made components,” he added.
Barclays had originally predicted three percent growth for the second quarter and Leong said he was looking to revise his full-year GDP forecast after an “unusually depressed” first half of 2015.
Traditionally an export-driven technology hub, Taiwan has benefited from Apple’s new iPhone 6, which launched last year — a number of leading Taiwanese firms such as Foxconn and Taiwan Semiconductor Manufacturing Co. are reportedly among Apple’s suppliers.
But the government in May lowered its growth forecast for this year to 3.28 percent from 3.78 percent, blaming increased competition from China in the tech industry.
China has been pushing to grow its own tech industry with the development of domestic smartphone brands and homegrown hardware, including chips.
TSMC, the world’s biggest contract microchip maker, said earlier this month it had “modest” expectations for the third quarter as demand for smartphones slow in emerging markets and China.
The government’s executive branch, known as the Executive Yuan, put forward broad measures on Monday to counter Taiwan’s weakening economy, including greater innovation to raise competitiveness in industries threatened by China’s homegrown suppliers and encourage domestic investments.
“Taking a mid to long term view, we need to accelerate the upgrading of our industries, strengthen investments and enhance export competitiveness, to continue the push for the economy’s structural shift,” Premier Mao Chi-kuo of the Executive Yuan said.
It comes at a time when economic stagnation and a lack of job and housing opportunities for younger generations are putting pressure on the ruling Kuomintang party ahead of presidential elections in January 2016.