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ASIA: Taiwan in recession as economy contracts record 8.36 pct

19 Feb 2009 12:41 AM

TAIPEI, Feb 18 AFP - Taiwan plunged into recession as the economy contracted a record 8.36 per cent in the three months to December due to the global economic meltdown, the government said on Wednesday.

The island's key electronics and export sectors have been badly hit by falling overseas demand.

The figure "marked the biggest slump since 1961" when the government started compiling quarterly figures, the Directorate General of Budget, Accounting and Statistics said in a statement.

The agency had previously forecast a contraction of 1.73 per cent in fourth quarter gross domestic product, and blamed the global economic turmoil which has hit the important export sector.

"The pace and scale of the global economic downturn beat our forecast. Taiwan's export and manufacturing sectors suffered a huge setback and the private sector's investment shrank at a fast pace," the agency said.

The export sector, the primary engine of Taiwan's economy, tumbled 19.75 per cent while imports fell 22.63 per cent.

Chen Tain-jy, head of the Council for Economic Planning and Development, admitted that "Taiwan's economy was moving into recession" after GDP contracted for two consecutive quarters.

The island's economy contracted a revised 1.05 per cent in the third quarter, down from 1.02 per cent when the figures were first released in November.

For the full-year 2008, GDP edged up 0.12 per cent while per capita GDP came in at 17,576 US dollars.

Looking ahead, the agency predicted the domestic economy would contract 2.97 per cent in 2009 as overseas demand for electronic-related products - Taiwan's main exports - is not expected to pick up anytime soon.

Taiwan's GDP is projected to contract for three more quarters - 6.51 per cent in the first quarter, another 6.85 per cent in the second quarter, and 2.67 per cent in the third - before swinging back to a rise of 4.50 per cent in the fourth quarter.

"This is likely to be the longest recession in Taiwan's history so far," Shih Su-mei, head of the agency, told reporters.

Shortly after the announcement, Taiwan's central bank announced a further 25 basis point cut to its key interest rate, trimming the benchmark discount rate to 1.25 per cent in a bid to boost domestic demand.

The cut is the seventh in four months.

The central bank in December slashed interest rates by 75 basis points, its biggest cut since December 1982, in a bid to stimulate the flagging economy.

The policy easing began on September 16 with a reduction in the reserve requirement ratio, after four years of tightening.

The government has said it plans to launch a 21-billion-US-dollar economic stimulus drive in a bid to create 150,000 new jobs and reduce unemployment to below 4.5 per cent this year.

Out of the total amount, 320 billion Taiwan dollars will be spent this year, according to a draft initiative approved by the cabinet early this month.