Taiwan narrowly dodged a recession in the third quarter even as the economy contracted for the first time since the global financial crisis, with exporters suffering a crippling blow from faltering global demand and a slowdown in China.
The worse-than-expected 1.01 percent slump in July-September gross domestic product was the first year-on-year contraction in six years, and prompted the government to announce a T$4.08 billion ($125.33 million) stimulus package to boost domestic consumption over the short term.
High-tech manufacturers in Taiwan's trade-reliant economy have been hurt by faltering demand in regional powerhouse China, along with other exporters from Singapore to Japan to Brazil.
"The biggest drag is exports due to the softening of China. That won't dissipate anytime soon and probably will drag on growth in the fourth quarter," said Emily Dabbs, economist with Moody's Analytics in Sydney.
Following the release of Friday's preliminary GDP figures, Premier Mao Chi-kuo told a news briefing that Taiwan's outlook will depend on how conditions evolve overseas, a tacit admission that policymakers have few answers to depressed global demand.
"We will do what we can with these short term measures," Mao said.
The year-on-year GDP decline was deeper than a forecast 0.6 percent drop in a Reuters poll, compared with 0.52 percent growth in the second quarter.
Taiwan barely escaped two consecutive quarters of contraction, would have put the economy in a technical recession for the first time since the depths of the financial crisis in 2009.
The economy grew by just 0.21 percent in the third quarter on a seasonally adjusted annualised basis (SAAR), after shrinking 6.56 percent in the second quarter from the first.
Facing deteriorating global conditions, the central bank cut rates for the first time since the global financial crisis in late September and some analysts expect it may have to ease further.
"The overall environment is still not good and the central bank must shoulder the burden of saving the economy," said Forest Chen, analyst with TC Bank in Taipei.
Indeed, the outlook didn't offer much encouragement.
A key supply-chain hub for high-tech products, Taiwan's manufacturers that contract for global titans such as Apple Inc and Hewlett-Packard Co have been hit hard
In September, exports dropped 14 percent with sales to major trading partner China tumbling 17.1 percent, carving off a big slice of economic output.
"Growth momentum faltered broadly," ANZ economists said in a note to clients, and cut their forecast for Taiwan's 2015 GDP growth to 1 percent, from 1.3 percent, following the weak data.
Taiwan's official 2015 GDP growth forecast stands at 1.56 percent - a sharp slowdown from 3.77 percent growth in 2014 and the lowest in six years.
But expectations are for a downward revision when the statistics agency issues its revised outlook in later November.