Taiwan may cut 2016 GDP outlook for third time as exports slump

[TAIPEI] Taiwan will probably trim its 2016 economic growth outlook for the third time, as weak demand for the island's tech exports continue to hurt the island's prospects for recovery.

The government, due to issue final figures for the first quarter on Friday, cut its 2016 growth estimate twice before - to 1.47 per cent in February and to 2.32 per cent in November.

Trade-reliant Taiwan, whose economic fortunes are closely linked to China, is struggling to shake off last year's recession due to faltering global demand for its technology products and slowdown in the world's second-largest economy.

While exports have contracted for more than a year and export orders and industrial production remain soft, the outlook for domestic demand is also lacklustre.

"Global economic momentum has been so soft, hurting Taiwan badly," said Kevin Wang, an analyst of Taishin Securities in Taipei.

"For Taiwan's most important tech sector, prospects are bleak given growing competition from China's supply chain as well as sluggish demand."

After industrial output fell this week, ING said the government's 1.47 per cent 2016 GDP forecast was optimistic and would be downgraded while DBS said full-year growth risked falling below one per cent.

Economists also expect the government to further lower its 2016 export estimate - at a negative 2.78 per cent - on slowing worldwide demand for smartphones and other gadgets.

The economy grew a seasonally-adjusted 0.76 per cent in the January-March quarter, decelerating from 2.18 per cent growth in the final quarter of 2015. From a year earlier, it shrank 0.84 per cent, deeper than a 0.52 per cent contraction in the fourth quarter.

Taiwan is the Asian hub for many global names, such as Apple Inc, in making components for smartphones, notebook PCs and other tech gadgets.

The US iPhone maker recently posted its first decline in iPhone sales and a lower-than-expected revenue outlook, clouding the fortunes of many Taiwan suppliers.

Slowing economic momentum will pressure the new government to come up with more stimulus to support the economy.

"This country urgently needs a new model for economic development," President Tsai Ing-wen said in her inauguration speech last week, adding that Taiwan needs to find new markets and not rely too heavily on China.

The government announced this week it would set up a fund of up to T$100 billion (S$4.27 billion) to support industry innovation and transformation.

The central bank is widely expected to cut interest rates for the fourth straight time in June although policymakers have said a cut may have limited impact on the export-driven economy.

REUTERS