TAIPEI: Taiwan's economy shrank a record 10.24 percent in the first quarter from a year earlier, the government said yesterday, worse than market expectations and triggering a cut in the full-year growth forecast.

The government lowered its 2009 GDP growth estimate to a year-on-year contraction of 4.25 percent from its previous forecast of a 2.97 percent contraction.

Economists widely expect Taiwan's gross domestic product to log annual falls until late this year when the global economy is expected to stage a clearer recovery to help exports, private investments and consumption.

AU Optronics Corp and Taiwan Semiconductor Manufacturing Corp are among companies that have pared capital expenditure and hiring as the global recession slashed exports, driving the jobless rate to an all-time high. The island's stock index rose to the highest in almost nine months yesterday on optimism the mainland's fiscal stimulus and Taiwan's closer relations with the mainland may help ease the economy's slump.

"The figures are very bad, worse than the fourth-quarter figures. Although most people are mentally prepared for it, it's still worse than expectations.

"A worsening economy is generally good for the bond market, but unless Taiwan stocks react badly to the data, it's unlikely we'll see any real effect on bonds tomorrow," said Ernest Lee, director at Mega Securities.

"This marks the worst decline since records began in 1962 and would be significantly lower than market expectations of around -9.2 percent. Job prospects across various industries have dimmed tremendously. Suffice to say, with the unsettled global financial market, the outlook in the job market remains dour and we expect to continue seeing pressure there," said Sue-Ann Lee, an economist at Forecast Ltd.

Taiwan's first-quarter annual contraction appears to be worse than some of its Asian peers that have similar trade profiles, with South Korea's GDP contracting by an annual 4.3 percent and Hong Kong down 7.8 percent.

Taiwan's statistics agency forecast in February a 6.51 percent contraction for the first quarter, with five quarters of annual declines expected through the third quarter of 2009, marking the longest recession the island has ever suffered.

"If you look at the annual numbers, it seems that Taiwan's economy is faring much worse because of some exaggeration in the high-base we had last year," said Ma Tieying, an economist at DBS in Singapore.

"Fundamentally, we see some improvement in the overall economy, especially if you look at the quarter-on-quarter figures, with exports bottoming out and domestic consumption helped by the government issuing shopping vouchers."

Reuters

(HK Edition 05/22/2009 page16)