Thursday, 19 February 2009

Taiwan enters recession, US manufacturing and housing collapse

Another rate cut on Wednesday, this time from Taiwan. Bloomberg reports:

Taiwan’s central bank cut interest rates to a record low after the economy shrank an unprecedented 8.36 percent in the fourth quarter as exports and business investment tumbled.

Governor Perng Fai-nan and his board pared the discount rate on 10-day loans to banks to 1.25 percent from 1.5 percent in Taipei today, the seventh reduction since late September. The decline in gross domestic product from a year earlier was the biggest since official records began in 1952, and exceeded the 6.82 percent drop forecast in a Bloomberg survey of economists.

Taiwan entered its first recession since the technology bubble burst in 2001 as the global economic slump reduced demand for Taiwan Semiconductor Manufacturing Co. computer chips and Quanta Computer Inc. laptops. The central bank will pump money into the economy if Taiwan’s lenders fail to provide more credit to businesses, Perng said...

Taiwan’s economy will shrink 2.97 percent this year, the government forecast today, reversing its November estimate of 2.12 percent growth.

It doesn't help export-dependent Taiwan that the US economy continues to deteriorate. From Bloomberg on Wednesday:

The Federal Reserve’s industrial production index dropped 1.8 percent to 101.3, the lowest level in more than five years, the central bank reported today in Washington. Housing starts plunged 17 percent to an annual rate of 466,000, the fewest since records began in 1959, Commerce Department data showed...

The report from Commerce showed building permits, a sign of future construction, dropped 4.8 percent to a 521,000 annual pace.

The US government is doing its bit to help the housing market.

... President Barack Obama pledged $275 billion in a program that includes cutting mortgage payments and encourages loan modifications to keep Americans in their homes...

But in the meantime, deflationary pressure is building.

A third report today showed prices of goods imported into the U.S. fell in January for a sixth consecutive month on lower commodity costs and slumping demand. The Labor Department’s import-price index decreased 1.1 percent last month after a 5 percent drop in December. Prices were down 12.5 percent from January 2008, the most since records began in 1982.

The Fed aims to arrest the price trend.

Fed officials introduced a long-term U.S. inflation estimate, with most officials aiming to anchor public expectations at a 2 percent rate, according to minutes of the central bank’s Jan. 27-28 meeting released today in Washington. Some officials saw a risk of broad price declines, a pattern that could worsen the recession by making debts harder to repay.

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