Robust exports fuel surge in Taiwan GDP growth

Central bank faces pressure to boost interest rates as robust demand for electronic products in quarter fuels sharpest GDP surge in 18 months

PUBLISHED : Friday, 01 August, 2014, 2:02am
UPDATED : Friday, 01 August, 2014, 2:02am

Taiwan's economy grew at its fastest annual pace in 18 months in the second quarter, increasing pressure for a rise in interest rates to curb rising inflation.

April-June growth quickened to 3.84 per cent from 3.14 per cent in the first quarter, the statistics agency said yesterday, underpinned by robust demand for electronic products from markets in mainland China and the United States.

The figure bodes well for Taiwan to achieve its target for the year of 2.98 per cent, which would be the fastest rate since 2011.

However, with inflation accelerating in the past few months, the growth spurt could put pressure on the central bank to raise interest rates for the first time in three years, analysts said. A few are pencilling in an increase of 12.5 basis points before the end of the year.

"We expect that third-quarter growth could even exceed second quarter and that full-year growth could hit 3.29 per cent," said Achilles Chen, an analyst at Cathay Financial Holdings.

"In light of this, we expect that the central bank will raise interest rates in December at the earliest."

Annual inflation at 1.64 per cent in June is still below the central bank's target of 2 per cent, but higher costs of food and fuel imports have driven prices up recently. The bank has left its key rate steady at 1.875 per cent since the third quarter of 2011.

While there is no clear consensus on a rate rise this year, some analysts said recently rising consumer prices would put pressure on policymakers to tighten rates. The central bank will hold its next rate meeting next month.

Taiwan is one of the world's leading exporters of electronic goods and boasts a number of suppliers for foreign hardware heavyweights including Apple and Hewlett-Packard. Its growth data is often seen as a barometer of global demand.

Data last week showed export orders, which led actual exports by two to three months, grew at its quickest pace in 18 months, suggesting a brightening outlook for growth over the next year.

The government sees its industries "in good position" due to launches of new products, such as Apple's iPhone 6, the statistics agency said.

In the second quarter, exports, imports, investments and domestic consumption contributed to the growth. Exports of information and telecommunications, mining and optical products declined, although electronics and basic metals rose, it said.

Exports grew 4.45 per cent from 3.89 per cent in the first quarter, while imports rose 3.88 per cent from 1.9 per cent.

The economy grew 1.45 per cent quarter on quarter, compared with 0.47 per cent in the first quarter, suggesting that growth momentum has picked up significantly, according to economists at ANZ.