UPDATE 1-Taiwan Q3 GDP growth slows to 1.58 pct y/y, below forecast

Michael Gold and Jeanny Kao
Wednesday, 30 Oct 2013 | 9:40 PM ET

* Q/Q seasonally-adjusted pace only +0.09 pct

* Poll had seen Q3 y/y growth of 2.44 pct

* Analysts, surprised by miss, see better Q4, 2014

TAIPEI, Oct 31 (Reuters) - Taiwan's economy grew by a preliminary annual pace of 1.58 percent in the third quarter and was flat from the previous three months, reflecting how global demand for Asia's exports remains sluggish. The annual figure, announced on Thursday, was far below the 2.44 percent growth median in a Reuters poll and the revised 2.49 percent year-on-year growth for the April-June period. The statistics agency said that on a seasonally-adjusted quarterly basis, GDP expanded only 0.09 percent in July-September, compared with 0.58 percent in the second quarter. Exports, consumption and investment were all below forecasts, the agency said. "It's a big downside surprise," said Raymond Yeung, senior economist at ANZ in Hong Kong. Wai Ho Leong, economist at Barclays Capital in Singapore, agreed Thursday's numbers are a "big miss" but he said he believes it is because numbers were centered on activity in July and August, which were "weaker months for services where Chinese visitor arrivals were relatively weak." Exports are pivotal for Taiwan, but by the government's statistics, the services sector accounts for nearly 70 percent of gross domestic product (GDP). Leong said that manufacturing was "much stronger in September, and I expect the prelim numbers did not capture the full effect of September. I think the final number should be closer to 2 percent when it's revised upwards." The statistics agency is expected to unveil final GDP numbers for the third quarter in two to three weeks. Leong expects there should be a "more substantial pop" as the level of caution among producers dissipates when they get orders for Christmas from the G3 economies.

'VERY APPREHENSIVE' "They're not producing ahead of those orders; they're very apprehensive about what's going on in the U.S., especially in politics," he said. ANZ maintains its full-year forecast of 2.2 percent growth for Taiwan. Yeung of ANZ said he sees some headwinds that will make Taiwan's central bank, which has held the benchmark interest rate at 1.875 percent since June 2011, to "remain accommodative for an extended period." "Semiconductor manufacturing may need to wait for a couple months before the recovery of business confidence," he said. Yeung, who sees full-year growth at 2.18 percent, said it could rise to 3.6 percent next year. Growth in China, Taiwan's top export market, has retreated from the double-digit figures of a few years ago, coming in at 7.8 percent year-on-year in the third quarter. U.S. growth remains anemic.

MIRED IN UNCERTAINTY With the global picture still mired in uncertainty, the overall export situation for Asia has not shown a significant upturn in the past two years, suggesting uneven recoveries in Asia's main markets. A week ago, South Korea reported that its economy grew seasonally adjusted 1.1 percent in the July-September period over the previous quarter, compared with a poll expectation of 1.0 percent. Weak global demand has hurt Taiwan exports, which fell 7 percent in September from a year earlier after several months of gains. Still, industrial output in September rose 1.1 percent from a year earlier, following a drop of 0.6 percent in August. In Taiwan's stock market, the third-quarter earnings season is delivering a mixed picture. Top chipmaker TSMC beating expectations but phone maker HTC reporting its first quarterly loss. A full table of GDP figures can be found at http://www.dgbas.gov.tw

(Additional reporting by Faith Hung; Editing by Richard Borsuk)