Taiwan Q2 GDP growth beats forecasts at 5.07 pct

Aug 23, 2007 - Taiwan's economy expanded in the second quarter by a higher-than-expected 5.07 percent from a year earlier, prompting the government to raise its 2007 growth forecast due to strength in private investment.

Analysts expect growth to be supported in coming quarters by a recovery in domestic consumption but exports, the mainstay of the island's economy, will depend to a great extent on U.S. demand, which may be slowing.

The growth in gross domestic product reported on Thursday -- the fastest rate since the fourth quarter of 2005 -- compared with a median forecast of 4.2 percent in a Reuters poll and a revised figure of 4.18 percent in the first quarter.

"To get to 5.07 percent means that consumption is better than what we expected," said Citigroup economist Cheng Cheng-mount. "We think this year GDP will improve quarter by quarter. This is in keeping with our forecasts."

Taiwan's economic growth had trended lower since hitting 5.05 percent in the third quarter of 2006, mainly due to weak domestic demand and high tech-sector stockpiles that weighed on exports.

Its second-quarter growth compared with rival South Korea's 4.9 percent and Hong Kong's 6.9 percent in the same period.

The statistics agency, which does not provide seasonally adjusted GDP data, forecast the tech-reliant economy would grow 4.51 percent next year and revised up this year's forecast to 4.58 percent from a 4.38 percent estimate in May.

DOMESTIC DEMAND VITAL

"Looking ahead to the second half, domestic demand will be the key, as it must rise as the uncertainties in the United States could mean that exports are impacted slightly," said KGI Securities analyst Fang Wen-yen.

"The chance for private investment growth in the second half is pretty good as the financial stimulus measures announced by the economic ministry will be implemented, and as next year is an election year, there should be more in store."

Orders for exports to the United States in July were only 6.5 percent higher than a year before, according to separate official data on Thursday. Orders from Europe grew by 32.5 percent.

The government now expects overall exports to grow by 6.9 percent this year, up slightly from a previous forecast of 6.8 percent.

Taiwan is home to the world's two biggest contract chip producers and makes about 80 percent of the world's laptops and around 40 percent of flat panel displays.

Private consumption, which is recovering after a credit card crisis last year, will probably increase by 3.0 percent in 2007, unchanged from the previous estimate, and by 3.14 percent in 2008, the statistics agency said.

It expects Taiwan's consumer price index (CPI) to rise 1.48 percent in 2007, up from a 1.46 percent estimate in May, and it sees inflation at 1.46 percent next year.