TAIPEI: Taiwan's economy grew at its fastest annual pace in 1-1/2 years in the second quarter, increasing pressure on the central bank to hike interest rates before the end of the year to curb rising inflation.
April-June GDP growth quickened to 3.84 percent on-year from 3.14 percent in the first quarter, the statistics agency said on Thursday, underpinned by robust demand for the island's
electronic products from markets in China and the United States.
The figure handily topped the median forecast of 3.27 percent growth in a Reuters poll, and bodes well for Taiwan to achieve its 2014 target of 2.98 percent, which would be the fastest rate since 2011.
However, with inflation accelerating in the last few months, the growth spurt could put pressure on the central bank to raise interest rates for the first time in three years, some analysts said. A few are penciling in a 12.5-basis-point hike before the end of the year.
"We expect that third-quarter growth could even exceed second quarter and that Taiwan's full-year growth could hit 3.29 percent," said Achilles Chen, an analyst of Cathay Financial Holdings, Taipei.
"In light of this, we expect that the central bank will raise interest rates in December at the earliest," Chen said.
Annual inflation at 1.64 percent in June is still below the central bank's target of 2 percent, but higher costs of food and fuel imports have driven prices up recently.
The central bank has left rates steady at 1.875 percent since the third quarter of 2011. While there is no clear consensus on a rate hike this year, a growing minority of analysts including from Standard Chartered Bank and DBS said recently that rising consumer prices will put pressure on policy makers to tighten rates.
The central bank is set to hold its next rate meeting in September.
Taiwan stocks, which had touched more than six-year highs recently, fell 1 percent about an hour into trade. Brokers said the slide was linked to new rules that Taiwan is planning to implement on brokerages reports on individual stocks.
TECHNOLOGY BOOST
Taiwan is one of the world's leading exporters of electronic goods and boasts a number of suppliers for foreign hardware heavyweights including Apple Inc. and Hewlett Packard . Its GDP data is often seen as a barometer of global demand.
Data last week showed that export orders, which lead actual exports by 2-3 months, grew at its quickest pace in 1-1/2 years, suggesting a brightening outlook for growth over the next year.
The Taiwan government sees its industries "in good position" due to launches of new products, such as Apple's iPhone 6, the agency said.
In the second quarter, exports, imports, investments and domestic consumption contributed to the growth.
Exports of information and telecommunications, mining and optical products declined, though electronics and basic metals increased, the agency said.
Exports grew 4.45 percent from 3.89 percent in the first quarter, while imports rose 3.88 percent from 1.90 percent during the same period.
Sequentially, the economy grew 1.45 percent quarter on quarter, compared with 0.47 percent in the first quarter, suggesting that growth momentum has picked up significantly, according to economists at ANZ.
"The stable growth in Q2 reinforces our view that Taiwan's economy will continue to recover in H2 on the back of a sustained recovery in advanced economies and Mainland China," they said.
Strong second-quarter GDP growth of 4 percent in the US, on the heels of a pick-up in consumer spending, should benefit Taiwanese exports to the world's largest economy.
China's second-quarter growth rate of 7.5 percent came in above forecasts, though many caution that this was largely due to government stimulus measures and that a cooling real estate market could act as a drag on economic activity going forward.
Exports slightly lagged forecasts in June with a 1.2 percent growth.
Shipments to the United States, though, jumped nearly 12 percent in a positive sign that the island's tech firms were reaping the benefits of the season's new line-up of smartphones, particularly Apple's new iPhone 6.
Hon Hai Precision, the world's No.1 electronics parts maker and a major assembler of iPhone 6, said in June it expects 2014 profit growth to be no less than 10 percent.
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