April 30, 2019 / 9:22 AM / in a month

UPDATE 1-Taiwan's Q1 economic growth slows as global tech demand falters

* Taiwan Q1 GDP +1.72 pct y/y (Reuters poll +1.66 pct)

* Investments by businesses back to Taiwan pick up - analyst

* Economy may have bottomed out in Q1 - economist

By James Pomfret

TAIPEI, April 30 (Reuters) - Taiwan’s economy grew at its slowest pace in more than two years in the first quarter as cooling demand for electronics hit the island’s tech exports amid a prolonged U.S.-China trade war.

Gross domestic product (GDP) expanded 1.72 percent in the January-March period from a year earlier, preliminary data showed on Tuesday, the slowest since June 2016 and down from 1.78 percent in the fourth quarter. A Reuters poll of economists estimated growth of 1.66 percent.

Woods Chen, an analyst with Yuanta Securities in Taiwan, said the growth numbers reflected changes in investment flows as a result of U.S.-China trade tensions.

“The momentum of investments by Taiwanese businesses back to Taiwan strengthened. This is the main reason first quarter GDP was better than expected.”

Taiwan’s export orders, a leading indicator of actual exports in the coming months, fell for the fifth straight month in March as the island’s manufacturers continued to face falling orders for tech products.

Last week, however, the government projected a rebound in orders in the third quarter, citing a possible recovery in tech demand boosted by launches of smartphone models and new technology such as artificial intelligence.

DBS economist Ma Tieying said Taiwan’s economy may have bottomed out in the first quarter and a recovery in smartphone demand in China may help boost the island’s growth in the coming months.

“Lower prices may help to boost iPhone sales to some extent, and in turn, benefit the South Korean and Taiwanese tech companies in the Apple supply chain,” she wrote in an April note.

Slowing technology demand has hit Taiwan’s supply chain manufacturers. Chipmaker TSMC earlier this month posted its steepest quarterly profit drop in more than seven years partly due to sluggish smartphone sales.

Corporate results so far point to a tech sector recovery in the second half of this year at the earliest, as consumer gadget makers and data crunching server providers have yet to start placing big orders due to the weaker global economy.

In February, Taiwan trimmed its 2019 economic growth forecast to 2.27 percent, down from a forecast of 2.41 percent in November. (Additional reporting Jeanny Kao; Editing by Jacqueline Wong)

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