Thu, Nov 03, 2011 page11

• Taiwan most vulnerable to a technical recession

  WEAK POINTS: Of its Asian rivals, Taiwan is the most likely to enter a technical recession, as nations such as South Korea benefit from diversified machinery exports

  • By Kevin Chen / Staff Reporter
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  Compared with its neighboring Asian rivals, Taiwan could be the economy most likely to experience a technical recession in the region this year, Credit Suisse said in a report released yesterday, adding that South Korea would outperform Taiwan thanks to its extremely competitive currency.

  A technical recession refers to two consecutive quarters of contraction in GDP growth. Credit Suisse’s warning came after BNP Paribas Securities last month said Taiwan might suffer a technical recession in the second half this year because of a recession in the US, stagnation in Europe and an economic slowdown in China.

  The Directorate-General of Budget, Accounting and Statistics (DGBAS) on Monday revised downward its GDP growth forecasts for the third quarter and fourth quarter, saying Taiwan’s economy would grow by 3.37 percent in the last quarter, lower than the DGBAS’ previous estimate of 3.48 percent, and expand 3.87 percent this quarter, down from the 4.71 percent in its earlier forecast.

  Based on a seasonally adjusted quarterly rate, GDP contracted 0.28 percent during the July-to-September quarter from the previous quarter and looks set for a 1.09 percent growth this quarter, the DGBAS said in a report released on Monday.

  However, Credit Suisse said South Korea’s economy did better than Taiwan’s in the third quarter, as the former registered 0.7 percent quarter-on-quarter GDP growth while Taiwan contracted.

  Furthermore, the two economies’ respective purchasing managers’ index (PMI) for manufacturers and composite index of lead indicators recently suggested that Taiwan would face greater headwinds by the end of the year than South Korea, Credit Suisse said.

  HSBC’s manufacturing PMI numbers showed that the Taiwan index fell to 43.7 from 44.5 last month, while the South Korean equivalent rose modestly to 48 from 47.5. In addition, Taiwan’s composite lead indicator dropped 0.9 percent in the June-to--September period, compared with a 0.3 percent increase in South Korea’s index.

  “In our view, Taiwan is the economy most at risk of a technical recession in Asia this year,” Robert Prior-Wandesforde, an analyst at the Swiss brokerage, wrote in the report.

  He attributed South Korea’s outperforming Taiwan this year to two factors. One is that South Korea has a higher share of machinery exports, which are more geographically diversified and benefit from the relative resilience of Chinese demand. The other is the extremely competitive South Korean won, which helps the country compete with Japan in key areas such as shipbuilding, motor vehicles and electronics.

  “In addition, at about 75 -percent, Taiwanese exports are a larger share of GDP than in Korea, where exports account for roughly 50 percent of total output,” Prior--Wandesforde wrote.

  Council for Economic Planning and Development Minister Christina Liu (劉憶如) yesterday echoed the Credit Suisse report, saying that Taiwan’s economy would keep underperforming that of South Korea’s in the short term.

  “South Korea’s government has made efforts on economic transition for years by supporting specific industries’ development and signing an FTA [free-trade agreement] with the EU and the US, which helps its economy ease the impact of the global economic slowdown,” Liu said by telephone.

  However, Chang Chun-fu (張俊福), director-general of the Bureau of Foreign Trade, said even though the two countries would face the same macro economic challenges in the second half, Taiwan’s GDP would grow by 4.6 percent this year, stronger than South Korea’s 3.9 percent.

  Additional reporting by Amy Su and Jason Tan
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