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Taiwan economy shrinks record amount, rate cut

Posted on: February 19, 2009

Reuters – Thursday, February 19

* Taiwan Q4 GDP falls more than 8 pct on year – data

* Deepest contraction on record, economy now in recession

* Central bank cut rates 25 bps to record low 1.25 pct

* Taiwan joins ranks of export economies that are shrinking

By Lee Chyen Yee and Jeanny Kao

TAIPEI, Feb 18 – Taiwan’s economy shrank at a record annual pace of more than 8 percent in the fourth quarter, reflecting the exposure of Asian exporters to the brutal slump in world demand and tipping the island into a recession.

Taiwan’s central bank immediately responded with an emergency rate cut, its seventh since the global financial crisis blew up in September, reducing its benchmark rate by 25 basis points to a record low of 1.25 percent.

Like Japan and South Korea, Taiwan has reported a record fall in exports as the global financial crisis tipped major centres that buy Asian goods, including the United States and Europe, into recession.

The statistics agency forecast five quarters of economic contraction from the third quarter of 2008 to the third quarter of this year, which officials said would be the longest recession the island has ever experienced.

“Surely, the first quarter will be worse,” said Grace Ng, an economist at JP Morgan, who estimated the economy shrank more than 22 percent in the fourth quarter alone on a seasonally adjusted, annualised basis.

“The major drag has been on the external demand side and therefore on industrial production.”

Taiwan’s statistics agency said gross domestic product, the broadest measure of economic performance, slumped in the fourth quarter by 8.36 percent from a year earlier. The data confirmed a Reuters report from earlier in the day.

Analysts had expected the data to reveal a fall of 5.6 percent in GDP, a Reuters poll showed.

The economy shrank in the third quarter by 1.05 percent from a year earlier, revised figures showed. Preliminary data in November had shown a fall of 1.02 percent.

The economy expanded a modest 0.12 percent in 2008, but the statistics agency said it expected a contraction in 2009 of almost 3 percent, which would be the worst since 1962, when the agency’s records began.

It also said exports would slump 20 percent in 2009, a sharp deterioration from 2008 growth of 3.64 percent. [ID:nTPU001123]


Earlier this week, Japan reported its export-geared economy shrank 4.6 percent in the October-December quarter from a year earlier. [ID:nT343750]

The economies of other exporters are also shrinking. South Korea’s GDP fell 3.4 percent and Singapore’s economy contracted 2.6 percent in the same quarter from a year earlier.

1 Response to "Taiwan economy shrinks record amount, rate cut"

Europe and the United States were winning the globalization race until 2008, as master bankers handling the export earnings of other states.

The flip side of the equation is that the United States and Europe gained cash but lost their bread-and-butter capability – manufacturing.

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