Taiwan sees economy shrinking, cuts interest rate

Taiwan's government slashed its economic forecast Wednesday, predicting the island's economy will shrink 3 percent this year amid plunging exports.

To spur growth, the central bank moved quickly to cut interest rates for the seventh time since September.

The revision in the annual gross domestic product forecast came after a sharp drop in exports - down 40 percent in both January and December - alarmed officials. Previously, the government had projected the economy would grow 2 percent this year.

"We are revising the growth figures significantly because Taiwan's exports are being affected by the drastic drop in international trade," said Minister Shih Su-mei of the Directorate-General of Budget, Accounting and Statistics.

The statistics office also said gross domestic product shrank 8.36 percent in the fourth quarter - its worst quarterly drop ever.

With a revision in third quarter GDP to minus 1.05 percent, Taiwan's economy is officially in a recession, traditionally defined as two straight quarters of contraction. For all of 2008, Taiwan's GDP grew a scant 0.12 percent, Shih said.

TAIPEI, Taiwan AP