Taiwan growth slows in Q2 as exports plunge

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TAIPEI: Taiwan’s economy grew at its slowest pace in three years in April-June, data showed on Friday, hammered by a plunge in its key export sector and falling demand in China.

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The results underscore the challenge Taipei faces in diversifying from its traditional mainstays of electronics and hardware exports, as it tries to encourage tech innovation from smaller homegrown businesses as one way to boost the economy.

Growth came in at just 0.64 percent year-on-year in the second quarter, sharply down from 3.37 percent in the previous three months and badly missing a forecast of 3.05 percent, the Directorate General of Budget, Accounting and Statistics said.

Compared with the previous three months the economy shrank 7.65 percent.

Exports fell 9.81 percent as inventory of electronic products remain high and China expands supply chains within the mainland.

The soft reading came despite a 2.81 percent rise in private consumption, which beat expectations of a 2.75-percent increase.

Analysts warned that the news highlights the need for the government to introduce measures to support the economy as it faces a general election in early 2016.

“It’s not only cyclical . . . there are also structural factors,” said Wai Ho Leong, an economist at Barclays based in Singapore.

China’s increasing use of domestically produced goods “has reduced demand for Taiwan-made components”, he added.

Barclays had originally predicted three percent growth for the second quarter and Leong said he was looking to revise his full-year GDP forecast after an “unusually depressed” first half of 2015.

Traditionally an export-driven technology hub, Taiwan has benefited from Apple’s new iPhone6, which launched last year—a number of leading Taiwanese firms such as Foxconn and Taiwan Semiconductor Manufacturing Co. are reportedly among Apple’s suppliers.

But the government in May lowered its growth forecast for this year to 3.28 percent from 3.78 percent, blaming increased competition from China in the tech industry.

China has been pushing to grow its own tech industry with the development of domestic smartphone brands and homegrown hardware, including chips.

TSMC, the world’s biggest contract microchip maker, said earlier this month it had “modest” expectations for the third quarter as demand for smartphones slow in emerging markets and China.

The government’s executive branch, known as the Executive Yuan, put forward broad measures on Monday to counter Taiwan’s weakening economy, including greater innovation to raise competitiveness in industries threatened by China’s homegrown suppliers and encourage domestic investments.

“Taking a mid to long term view, we need to accelerate the upgrading of our industries,
strengthen investments and enhance export competitiveness, to continue the push for the economy’s structural shift,” Premier Mao Chi-kuo of the Executive Yuan said.

It comes at a time when economic stagnation and a lack of job and housing opportunities for younger generations are putting pressure on the ruling Kuomintang party ahead of presidential elections in January 2016.

AFP

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