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Taiwan growth hit by export drop, central bank board member says

Taiwan lowered its policy rate for the first time since the global financial crisis as the strength of its currency and China's slowdown dragged exports into a seven-month slump.

[TAIPEI] Taiwan's economic slowdown is mainly caused by a contraction in exports, according to Hua Nan Financial Holdings Co Chairman Liu Teng-cheng, who also serves as a board member of the island's central bank.

The monetary authority will take into "comprehensive consideration," including steady consumer prices, whether it needs to cut the policy discount rate, Mr Liu said by phone on Monday. Slower growth in China, which makes up a large part of the island's trade, also affected the local economy, Liu added.

Battered by a six-month slump in exports, Taiwan's growth unexpectedly slowed to the least since 2012 in the second quarter, fueling speculation the central bank may lower its benchmark rate for the first time since March 2009. The central bank has already reduced the overnight guiding rate over the last five days to increase cash supply, while Taiwan's dollar dropped 5.1 per cent this quarter after its strength in the first half impaired export competitiveness.

"Taiwan's poor economic growth in the second quarter was mainly because of exports, and some Taiwan dollar depreciation may help," Mr Liu said. "This year's economic conditions won't be as bad as in 2009 as the US economy is quite good." Currency weakness is a double-edged sword as it may affect imports as well, Mr Liu added. One silver lining for Taiwan's exporters is a recovery in the US, its second-biggest export destination after China and Hong Kong. Almost 40 per cent of the island's exported goods and services ended up in China or Hong Kong in July, while 13 percent went to the US.

The government forecast on Friday consumer prices will drop 0.19 per cent in 2015 - compared with a May projection of a 0.74 per cent gain - as prices declined every month this year. This came a day after central bank deputy governor Yang Chin-long said Taiwan has no deflationary concerns for now.