The nation saw its first GDP contraction in nearly three years as the second-quarter indicator slumped because of the impact of sluggish momentum both externally and internally, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday.
The same downside factors also led to the DGBAS revising downward its forecast for economic growth this year to 2.08 percent from the 3.03 percent it estimated in May.
Second-quarter GDP contracted by 0.16 percent from a year earlier, the first contraction since the third quarter of 2009, when the nation was dealing with the fallout of the global financial crisis, the DGBAS said in a report.
“Sluggish export demand was the main drag on the economy in the second quarter,” DGBAS section chief Joshua Gau (高志祥) told a press conference.
Weaker-than-expected global demand for exports, caused by the eurozone’s debt crisis and the slowing economies in the US and China, led the DGBAS to cut its forecast for the output sector to minus 1.73 percent in the second quarter, from 1 percent growth recorded a year earlier, Gau said.
Worse-than-expected exports put further pressure on the nation’s private consumption and fixed capital formation in the second quarter, the DGBAS said. Private consumption rose just 0.87 percent in the April-to-June period, while fixed capital formation shrank 8.35 percent.
For the whole year, DGBAS section chief Jasmine Mei (梅家瑗) said GDP would stay above 2 percent given current conditions, with the agency forecasting 2.08 percent growth.
However, if global economic momentum declines even further in the near future, it will make it more difficult for the nation to meet the 2 percent GDP growth rate goal, Mei said.
As for inflation, the DGBAS revised upward its forecast for annual growth in the consumer price index (CPI) to 1.9 percent, from the 1.84 percent it estimated last month, citing the negative impact of volatile weather on global food markets.
A severe drought in the US has been causing international grain prices to rise, while heavy precipitation in Taiwan in June drove up prices for vegetables and fruit, the DGBAS report said.
HSBC Asia Greater China economist Donna Kwok (郭浩庄) said the chances that the central bank would cut interest rates in September had risen after the DGBAS downgraded its GDP forecast.
However, Kwok retained her view that the central bank would keep policy rates steady at 1.875 percent when it next meets, as headline inflation is still trending upward, with domestic demand holding up on the back of a resilient job market.
“Sluggish global trade flows are preventing Taiwan’s economy from growing at its full potential, but its economic fundamentals are holding firm,” Kwok said in a statement.
Despite the disappointing news, Taiwan’s GDP expanded 3.16 percent on a seasonally adjusted annualized rate in the second quarter, from the 1.31 percent it recorded in the first quarter, DGBAS data showed.
This has provided more evidence that Taiwan may resume year-on-year expansion in the third quarter and avoid re-entering a recession, Kwok said.