Taiwan maintains scorching pace

Taipei :  Taiwan's economy expanded more than forecast last quarter, bolstering the case for further interest rate increases after the island's exports weathered global risks.

Gross domestic product grew 12.53 per cent in the three months through June from a year earlier, after climbing a revised 13.71 per cent in the first quarter, the statistics bureau said today in Taipei. Second-quarter growth exceeded the median estimate for a 10.15 per cent expansion in a Bloomberg News survey of 14 economists.

The recovery has boosted consumer and housing prices, adding to the case for higher borrowing costs even as slowdowns in Japan, the US and China, Taiwan's biggest trading partner, cloud the export outlook. The central bank unexpectedly lifted the benchmark rate from a record low in June amid falling unemployment and rising wages, joining counterparts from South Korea to India in moving to damp price pressures.

Upward pressure

"The growth looks well above consensus, which increases the odds of rate tightening in September and December," said Dariusz Kowalczyk, a Hong Kong-based senior economist at Credit Agricole. "The Taiwan dollar is likely to come under upward pressure, possibly triggering central bank intervention."

Taiwan's exports are equivalent to more than half of its $355.5 billion (Dh1305.5 billion) economy and rose for nine straight months through July, propelling first-quarter GDP growth at the fastest pace since 1978. The economy will expand 8.24 per cent in 2010, the statistics bureau forecast today, following a contraction in 2009.

Policy makers intervened to cap gains in the Taiwan dollar during the past four months amid the rebound in overseas shipments, traders who declined to be identified said. The local dollar rose 0.1 per cent to NT$31.93 (Dh3.6) against its US counterpart as of 4pm. in Taipei, according to Taipei Forex Inc., and has climbed 0.2 per cent this year. The Taiex share index closed 0.1 per cent higher ahead of the GDP report.

The global recovery enabled exporters including Hsinchu- based Taiwan Semiconductor Manufacturing Co., the world's largest custom manufacturer of chips, and Miaoli-based Chimei Innolux Corp., Taiwan's biggest maker of liquid-crystal displays, to post second-quarter net income that beat forecasts.

Shipments to China, which together with Hong Kong absorbs more than 40 per cent of Taiwan's exports, rose 38.8 per cent in July from a year earlier even as import growth eased in the world's fastest-growing major economy.

Property bubble

Taiwan's central bank raised the benchmark rate in June for the first time since 2008, executing a 0.125 per centage point increase to 1.375 per cent. It also introduced mortgage restrictions, including a 70 per cent cap on loans for second homes, after low borrowing costs fueled lending and a jump in housing prices, stoking concerns of a property market bubble.

House prices in metropolitan Taipei gained 20 per cent last year and may climb 10 per cent this year, Lee Jain-ming, a researcher at Sinyi Realty Co., said in May. Central Bank Governor Perng Fai-nan wrote to the chairmen of all financial institutions on the island last month, asking them to take steps to prevent housing speculation after complaints from citizens.

Consumer prices have also been rising, advancing 1.31 per cent in July, the seventh straight monthly gain. The average monthly wage jumped 7.2 per cent during the first five months of the year, while the jobless rate fell to 5.2 per cent in June.