Taiwan's economy probably grows at fastest pace in almost a year

FE Team | Published: August 25, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

Perris Lee
Taiwan's economy probably grew at the fastest pace in almost a year in the second quarter as spending by the island's consumers and companies made up for declining exports to the U.S.
Gross domestic product, a measure of all goods and services produced by the island, rose 4.35 percent from a year earlier, according to the median estimate of 17 economists surveyed by Bloomberg News. That would outpace the first quarter's 4.15 percent rate.
``The bulk of the growth came from domestic factors, from consumer spending to private investment,'' said Alan Liao, a Taipei-based economist of Chinatrust Commercial Bank.
Taiwanese companies including banks and utilities are hiring more workers, boosting household incomes and stoking consumer spending. Faster economic growth may provide room for the island's central bank to raise its benchmark interest rate from 3.125 percent, the second lowest in Asia after Japan's.
Growth in the three months ended June 30 would mark the 16th consecutive quarter of expansion in Taiwan's economy. A rate of 4.35 percent would be the fastest pace since the third quarter of 2006.
Still, some economists said the U.S. housing recession may curb demand by consumers in the world's largest economy for electronics and home appliances, threatening to cool expansion in the Asian region's economies, including Taiwan.
Stock and credit markets around the world have slumped the past month on mounting concern the rout in the U.S. subprime mortgage industry will damp global economic growth.
U.S. Fallout
``We need to be watchful going forward, as the turbulent housing and credit markets in the U.S. may hurt its consumption, and consequently demand for our goods,'' said Tigr Cheng, an economist at Polaris Securities in Taipei.
Taiwan's shipments to the U.S. fell 1.3 percent during the first half of the year, compared with an 8.7 percent increase in goods bound for China and Hong Kong combined. The U.S. is the island's second-largest market, buying 14 percent of exports.
Weaker U.S. demand is hurting Asian export-dependent economies, which are almost twice as reliant on overseas sales as the rest of the world.
Japan's exports to the U.S. rose 1.3 percent in July from a year earlier, one-fifth of the pace of the previous month. Singapore cut its 2007 export growth forecast. Thailand reported this week that overseas sales expanded in at the slowest pace in more than two years in June on a decline in shipments to the U.S.
The contribution to Taiwan's GDP growth from net exports probably shrank to 1.4 percentage points in the second quarter compared with 4.5 percentage points in the first quarter, according to Chinatrust's Liao.
Chipmaker's Loss
Powerchip Semiconductor Corp., Taiwan's biggest computer- memory chipmaker, reported on July 23 its first quarterly loss in four years after a glut drove down memory prices.
Helping power Taiwan's economic growth, consumer and business spending probably rose at a faster pace in the quarter.
Spending by consumers may have increased 2.5 percent in the three months ended June 30 compared with 2.3 percent in the first quarter, according to Citibank economist Renee Chen.
Faster economic expansion may bolster the likelihood the central bank will raise the key interest rate at least 12.5 basis points at the next quarterly policy meeting in September, she said in Taipei.
``Given our view on the economic growth, I think the central bank will need to focus on how to preempt inflation.''
The central bank has raised the benchmark discount rate on 10-day loans to banks for 12 straight quarters, most recently on June 21.
Business Investment
Private businesses investment expanded 3.89 percent in the second quarter, accelerating from 1.3 percent growth in the first three months of 2007, according to an estimate from Polaris's Cheng.
Taiwan's banks are hiring more workers as they recover from a surge in loan defaults that eroded earnings last year and 2005.
Standard Chartered Plc, which has 4,300 employees in Taiwan, plans to add 250 salespeople before the end of 2007 to expand wealth management services, the bank's Taiwan Chief Executive Jim F. McCabe said in an interview this month. Citigroup, Morgan Stanley, BNP Paribas and ABN Amro Holding NV say they will also add bankers.
Premier Chang Chun-hsiung said on Aug. 21 that the government will seek to reduce the unemployment rate to less than 3.8 percent by year's end, from 3.91 percent in 2006.
CPC Corp. will recruit 560 workers, Taiwan Power Co. will hire 577, while Taiwan Tobacco & Liquor Corp. will add 138, the Commercial Times reported in July. CPC is the island's state oil company and Taiwan Power is the state-run utility.
Standard Chartered's Taipei-based economist Tony Phoo last month raised his 2007 Taiwan growth forecast to 4.5 percent from 4.1 percent, citing an increase in household spending. Private consumption is equivalent to about
two-thirds of Taiwan's GDP.
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Bloomberg