Taiwan's growth set to halve to 2.2%

Taiwan is home to the world's two biggest chip makers

Taiwan's economic growth in 2001 will be a mere 2.22%, little more than half the government's expectations, according to the Chung Hua Institution for Economic Research.

It's the second influential think tank to slash its growth forecast within a week as a slowdown in global semiconductor sales to personal computer and mobile phone makers continues to stifle Taiwan's economy.

Last week, Academia Sineca reined in its expectations for 2001 growth in gross domestic product (GDP) to 2.38% from a previous 5.21%.

Now Chung Hua predicts GDP will grow at a sluggish 2.22% - not 4.57% as it had previously said.

Demand down

"We have seen further deterioration in both overseas and domestic demand since the second quarter and no signs of possible recovery in the third quarter," said Chung Hua.

First quarter GDP plunged to 1.06%, the lowest level for 26 years.

The government of Taiwan expects GDP to grow 4.02% - significantly lower than the 5.98% achieved last year.

The economic slowdown in the United States and Europe is undermining Taiwan's economy, which is heavily dependent on semiconductor sales to high tech firms.

Chipmakers in trouble

Taiwan is home to the world's two largest chip makers - Taiwan Semiconductor Manufacturing and United Microelectronics - which manufacture semiconductors for companies such as Motorola and Philips.

We have seen further deterioration in both overseas and domestic demand since the second quarter and no signs of possible recovery in the third quarter

Chung Hua

Both Taiwanese companies reported June sales below sector-watchers' expectations.

Taiwan Semiconductor's June sales were 8.5bn Taiwan dollars ($243m; £170m), down from May and down 29% year-on-year.

United Microelectronics reported June sales tumbled to 4.5bn Taiwan dollars, a 50% fall on year-on-year and a 14.3% decline on the previous month.

A clutch of big memory chip (DRAM) makers reported June sales down 50% year-on-year and down between 15% and 34% from May.

The latest gloomy projections for Taiwan's GDP are well below the levels reached during the Asian economic crisis which began in 1997.

Growth in 1997 was 6.68%, dipping to 4.57% the following year and recovering substantially last year.