(Updates shares, currency in fifth paragraph.)
Nov. 1 (Bloomberg) -- Taiwan’s economy expanded at the slowest pace in two years last quarter as a faltering global recovery hurt exports, prompting the government to cut its growth outlook for this year and 2012.
Gross domestic product climbed 3.37 percent in the three months through September from a year earlier, after rising 5.02 percent in the second quarter, the statistics bureau said in a preliminary estimate in Taipei yesterday. The median of 13 forecasts in a Bloomberg News survey was for a 3.56 percent gain.
Europe’s debt crisis and elevated U.S. unemployment have sapped demand for Asian exports, contributing to an easing in economic growth in nations from China to South Korea. Taiwan’s central bank left interest rates unchanged in September, snapping a run of five straight quarterly increases, as emerging-market officials try to shield expansion.
“Taiwan’s economy slowed considerably with the latest round of global market turmoil in August,” said Raymond Yeung, an economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. GDP performance this and next quarter may be “subpar,” and the central bank will probably leaving borrowing costs unchanged in December, he said.
The island’s benchmark Taiex stock index has slumped 15 percent so far in 2011 after investors pared bets on emerging markets. The Taiwan dollar has climbed about 1.2 percent against its U.S. counterpart over the same period, according to Taipei Forex Inc. The stock index rose 0.4 percent as of 10:17 a.m. local time today, while the local currency weakened 0.2 percent.
The economy contracted 0.28 percent last quarter from the prior three months, shrinking for the first time since 2009.
The government lowered its 2011 GDP growth forecast to 4.56 percent from 4.81 percent, and cut its estimate for 2012 to 4.38 percent from 4.58 percent.
It predicted an inflation rate of 1.51 percent this year, less than an earlier projection of 1.59 percent. Consumer prices may rise 1.12 percent in 2012, the administration said, compared with an earlier forecast of 1.21 percent.
Exports, which are equivalent to about two-thirds of Taiwan’s $355 billion GDP, rose 11.6 percent in the third quarter from a year earlier, compared with a 14.6 percent pace in the three months through June.
The statistics bureau predicted 13.18 percent export growth this year compared with an earlier estimate of 15.24 percent. Overseas sales may climb 6.68 percent in 2012, it said, lowering a previous forecast of 8.52 percent.
Europe’s sovereign-debt turmoil is clouding the outlook for Asia as the Group of 20 readies for further crisis resolution talks at its Nov. 3-4 summit in France. The meeting takes place a week after euro-area authorities pledged to magnify the capacity of their rescue fund to 1 trillion euros ($1.4 trillion).
In Asia, South Korea’s economy expanded at a slower pace in the third quarter compared with the previous three months as companies cut spending. China, Taiwan’s largest trading partner and investment destination, grew 9.1 percent in the three months through September from a year earlier, the least since 2009.
Risks are prompting Asian officials to boost fiscal measures, cut interest rates or hold off on further monetary tightening.
Taiwan’s central bank has increased its key rate in five steps to 1.875 percent currently from 1.25 percent at the start of June 2010, partly to curb gains in property prices. Consumer- price inflation eased to 1.35 percent in September from 1.95 percent in June.
Signs of an improvement in manufacturing in China should help limit the dip in Taiwan’s economy, enabling the island’s monetary authority to leave rates unchanged in December rather than cut borrowing costs, according to HSBC Holdings Plc.
“Taiwan’s slowing, but the domestic economy’s still holding up,” Donna Kwok, an economist at HSBC in Hong Kong, wrote in a research note on Oct. 24. “With China’s manufacturing activity now stabilizing, the island should be able to lean a bit more heavily on mainland demand as it fends off the impact of U.S. and European” deleveraging, she said.
For now, exporters are taking steps to counter slowing demand. Hsinchu-based Taiwan Semiconductor Manufacturing Co., the island’s biggest company by market value, last week cut its 2011 spending budget for the second time this year after posting its biggest quarterly profit decline in two years.
Inventec Corp. said Oct. 27 it will fire about 400 workers after an earlier decision to shut tablet computer production. The Taipei-based PC maker said Oct. 6 the closure was triggered by “changes in the macro environment and external factors.”
Taiwan’s President Ma Ying-jeou, seeking re-election in January, has sought closer commercial ties with China to bolster growth. Ma would get 43.9 percent of the vote, compared with 38.4 percent for the opposition Democratic Progressive Party’s candidate Tsai Ing-wen, the Taipei-based China Times reported Oct. 25, citing its own poll.
--With assistance from Tim Culpan in Taipei and Ailing Tan in Singapore. Editors: Sunil Jagtiani, Janet Ong
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