Taiwan slashes 2013 GDP growth forecast to 2.4 per cent

TAIPEI (REUTERS) - Taiwan slashed its 2013 economic growth outlook on Friday, showing increased concern that lacklustre global demand poses a threat to the island's pivotal tech exports to China and the United States.

The government chopped to 2.4 per cent from 3.59 per cent its forecast for this year's growth in gross domestic product.

However, the statistics agency also said on Friday that GDP grew more quickly in the first quarter than earlier estimated.

It put annual growth for January-March at 1.67 per cent, above its advance estimate of 1.54 per cent.

The agency also cut its forecast for this year's consumer price index rise to 1.23 per cent from a preliminary 1.37 per cent.

The government body said it had cut the full-year forecast because the outlook of global economy is "not as good as previously expected... The situation in Europe will not improve in short term, and there is still concern over the growth momentum of China and the U.S. economies. These are the factors that bode ill for Taiwan's exports."

It also said some Taiwan industries have been hit by soft global demand and increasing competition from Chinese companies.

"The weak areas lie in PCs, notebook PCs and plastics and petrochemical products." Taiwan grew only 1.32 per cent in 2012 but earlier had hopes of a much higher figure this year. In February, it raised its forecast for GDP growth this year to 3.59 per cent from 3.53 per cent.

The agency said it revised first quarter GDP up because of higher government spending and lower imports of services and products.

Slashing Taiwan's annual GDP growth forecast came one day after a preliminary survey showed that factory activity in China, Taiwan's No. 1 export destination, shrank for the first time in seven months in May. The HSBC Markit survey showed new orders fell, entrenching fears that China's economic recovery has stalled and that a sharper showdown may be imminent.

A growing number of analysts are worried about a Chinese slowdown.

Aidan Wang, economist at Yuanta Securities in Taipei, said cutting the full-year growth projection was "mainly caused by weaker-than-expected demand from China because its new leader is trying to suppress consumption and over-supply.

Also, a weakening yen affected orders from Taiwan." He said there's a chance Taiwan can revise its 2013 GDP expectation back up to 3 percent in the second half as "China's tightening is likely to take a breather" and the yen might not fall below 110 to the US dollar.

Despite lower growth and weaker consumer demand, "there's still little room for the central bank to lower rates as housing prices are still climbing," Mr Wang said.

Economists will see the slashed GDP projection as showing Taiwan's government expects a longer patch of bad news on exports.

Earlier this week, Taiwan reported that export orders in April fell 1.1 per cent from a year earlier. Orders from the US and China rebounded, pointing to recovering demand for the island's high-tech exports.

Still, the month's decline was the third in a row. In March, export orders unexpectedly contracted 6.6 percent from a year earlier.

Taiwan's export orders are a leading indicator of demand for Asia's exports and for hi-tech gadgets such as smartphones, and typically lead actual exports by two to three months.

Friday's GDP revisions were announced after Taipei markets closed. Taiwan shares ended down 0.3 percent. The Taiwan dollar was largely unchanged at T$30.030 (S$1.24) to the US dollar.