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While Taiwan's factories were kept busy last year, signs are emerging of weakening conditions in the sector this year. Photo: Bloomberg

Taiwan braces for weakest economic growth in five quarters

Island's GDP growth tipped at slowest in five quarters, reflecting weakness outside the US

Taiwan's export-driven economic growth could be entering a seasonal slowdown that may last longer than usual if current soft conditions outside the United States herald a downswing for major trading partners.

The government is expected to report its slowest quarterly year-on-year growth rate in five quarters today when it issues preliminary fourth-quarter gross domestic product data.

However, full-year growth is expected to be the fastest in three years.

A poll forecast Taiwan's GDP for the October-December period to have grown 3.1 per cent, slowing from the 3.63 per cent year-on-year pace of the third quarter, resulting in a 3.5 per cent GDP gain for all of last year.

Singapore's central bank unexpectedly eased monetary policy on Wednesday ahead of a scheduled review in April, joining a growing list of central banks acting to counter disinflation and slowing growth.

But the Federal Reserve's latest positive assessment of the US economy, the ultimate destination for many Taiwan-produced technology gadgets, favours a more optimistic view on Taiwan's economy.

Taiwan tends to follow US monetary policy closely and economists do not expect the island's central bank to raise benchmark interest rates until the second half of this year.

"Growth in Taiwan is still very solid," said Tao Wu, a senior economist at the International Monetary Fund.

Taiwan has been bucking the slowdown trend because of demand for Apple's signature smartphones, which are packed with parts made by Taiwanese suppliers. The "Apple effect" pushed Taiwan's technology goods-related exports to a record high in 2014, but some of Taiwan's December indicators point to weakening conditions.

Manufacturing activity as measured by the HSBC PMI showed new business and new export orders both fell for the first time in 16 months in December.

December exports fell a surprising 2.8 per cent as shipments to mainland China, Japan and Europe all contracted.

The rise in export orders last month beat expectations, but was lower than November's gain as orders from mainland China contracted for the second month in a row.

This article appeared in the South China Morning Post print edition as: Taiwan braces for economic slowdown
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