Taiwan’s economy hits new low, but upturn expected

Taiwan's economy shrank by a record 10.24 per cent year-on-year in the first quarter on slumping exports, the government said Thursday, as it forecast a deeper contraction this year. For 2009 overall, the country's directorate-general of budget, accounting, and statistics says it expects the economy to shrink by 4.25 per cent. Its previous forecast was for a 3 per cent contraction.

The drop follows the fourth quarter's revised 8.61 per cent contraction from a year earlier, and is the biggest slump since official records began in 1952, the statistics bureau said in Taipei.

The agency said the global recession continued to hurt Taiwan's exports - the main engine of the country's economic growth. Exports declined by 36.7 per cent year-on-year in dollar terms in the first quarter, it said. "This worst result is the main reason why the economy contracted significantly."

However, this may be the trough in the island nation's fortunes, with an upswing in the offing. The agency predicted that the economy would contract by 8.5 per cent in the second quarter and 3 per cent in the third, before returning to growth with a 5.2 per cent expansion during the September-December period. It shrank 8.6 per cent in the fourth quarter of 2008.

Among evidence the recession is easing, retail sales just declined 4.7 per cent in March, less than the 10.3 per cent drop in February. Exports, which account for more than two-thirds of the economy, fell 34.3 per cent in April, slowing from a 35.7 per cent slump in March, according to a Bloomberg report.

Also, in contrast to the dire economic numbers, Taiwan's stock market is surging. It has gained more than 50 per cent since its January low point, mostly on expectations of improved investment and trade opportunities with China.

Forbes points out that since President Ma Ying-jeou took office last May, he has moved aggressively to change his predecessor's anti-China stance and forge closer ties with Beijing. He has resumed high-level dialogue, facilitated regular direct transportation links, and loosened regulations on Taiwanese investment in China and Chinese investment in the island.

The island is starting to benefit from the Chinese government's 4 trillion yuan ($586 billion) economic stimulus package. China is Taiwan's largest export market, followed by the US. The two countries also last month signed agreements to increase direct flights, boost financial cooperation and crime prevention.

The statistics bureau expects an average 3,000 Chinese tourists a day, each with a daily spend of $237, adding in total of 0.4 per centage point to GDP in 2009.