The nation is in a deeper-than-expected recession as the economy contracted a record 8.36 percent in the final quarter of last year and is forecast to decline by an historic 2.97 percent this year, the government's statistics agency said yesterday.
In response to the dismal economic data, the central bank yesterday evening announced that it was trimming its key interest rates by 0.25 percentage points to a record low in a bid to help the nation brace for the toughest economic situation it has faced since 2001.
The Directorate-General of Budget, Accounting and Statistics (DGBAS) yesterday released its latest economic data, which indicated that GDP shrank 8.36 percent in the fourth quarter on a bigger-than-expected decline in exports that prompted the private sector to halt or delay investment.
"The global financial storm proved more harmful than expected," Minister of the Directorate-General of Budget, Accounting and Statistics Shih Su-mei (石素梅) told a press conference. "It is eroding exports as well as private investment and consumption at a pace beyond imagination."
Exports, the main driver of GDP growth in recent years, contracted 24.71 percent in the fourth quarter, the DGBAS report said.
The downtrend is projected to persist until the fourth quarter of this year.
The report showed the amount of outbound goods and services would drop 31.81 percent, 29.36 percent and 21.02 percent in each of the first three quarters. The indicator is expected to recover to 8.54 percent growth in the final quarter, the report said. The yearly drop would average 20.10 percent, its second-lowest level ever.
Shih said the gloomy business climate had led companies to slash capital equipment, personnel and other expenses, while increasing retrenchments and the number of workers on unpaid leave.
"Private investment fell 32.23 percent in the last quarter, with companies importing 28.18 percent less capital equipment," she said. "Altogether, domestic demand dropped 7.71 percent, dragging down the GDP by 6.33 percentage points."
The abysmal figures prompted the statistics agency to lower the GDP forecast for this year to a decline of 2.97 percent from the 2.12 percent growth it had predicted in November. The last time Taiwan reported a decline in GDP growth was in 2001, when the economy shrank 2.17 percent.
At a separate press conference, the central bank announced its seventh straight rate cut, bringing the discount rate to 1.25 percent. The rates on accommodations with collateral and on accommodations without collateral will fall to 1.625 percent and 3.5 percent, respectively.
"We are facing more severe economic conditions than before, so we have to bring the interest rates to this record low," central bank Governor Perng Fai-nan (彭淮南) told reporters.
Perng said the central bank would maintain its loosening monetary policy, but stressed that the nation's key interest rate would not drift down to zero.
The real interest rate may be at about 1.7 percent this year, he said.
"The loosening monetary policy along with the government's expanding fiscal budget will have a positive impact on the nation's economy," Perng said.
Perng also said the monetary policymaking body would put deflation issues on its radar after the national statistics department forecast that the consumer price index (CPI) may fall 0.82 percent this year from last year.