Taiwan economy shrinks for first time since 2009 on export slump

Employees working on a factory production line in Tainan in 2013.
Employees working on a factory production line in Tainan in 2013. PHOTO: REUTERS

TAIPEI (BLOOMBERG) - Taiwan's economy contracted on a yearly basis for the first time since the global financial crisis as a slump in exports amid an uneven global recovery dragged on consumption.

Gross domestic product fell 1.01 per cent 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 per cent growth originally reported in the previous quarter and the 0.5 per cent 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 last quarter. Domestic consumption also cooled as local shares suffered their worst quarter since 2011 and the unemployment rate rose more than expected last month. Still, economists say growth is likely to return to positive territory in the current period as U.S. and Chinese demand recovers.

"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, said before the release. "Continued recovery in developed economies such as Europe and the US should boost demand in the fourth quarter. Two straight quarters of contraction are unlikely."

The central bank cut the benchmark rate for the first time since 2009 in September, citing high real rates and a negative output gap.

"Amid the poor economic outlook, Taiwan's intermediary exports to China and other emerging markets have been affected," said Hsu Kuo-An, an economist at Capital Securities Corp. in Taipei. "US was supposed to raise rates but it hasn't, which shows recovery in the world's largest consumer nation is still weak."