Taiwan's economy shrank slightly in the second quarter, a far worse performance than expected, as falling demand dragged on exports.
The economy contracted 0.16 per cent year on year, according to figures released on Tuesday. Analysts had expected a 0.5 per cent expansion, according to a survey conducted by Bloomberg.
The disappointing data "reflect the slowdown of global demand", the government's statistics and budget authority said in a statement. The department also cut its growth estimate for 2012 to 2.1 per cent, down from 3 per cent. Last quarter, the economy grew 0.4 per cent year on year.
Taiwan has struggled with limited success to rise above sluggish global growth. Slow sales of PCs and smartphones have been a drag on the economy, which depends on electronics and communications technology for half its exports.
"It is very much a global story. [Taiwan] is so reliant on what happens to the global economy," said Sukhy Ubhi of Capital Economics.
Taiwan's central bank recently lowered its overnight interest rate to encourage more lending. However, Taiwan's exposure to overseas demand means that "even if you get ... fiscal policy loosened or interest rate cuts, that can only cushion the blow of weaker global growth", said Mr Ubhi.
One bright spot for the economy has been its warming ties with China. Most visibly on the ground in Taiwan, that has meant an uptick in the number of mainland tourists visiting either individually or with package tours.
UBS forecasts that tourism-related receipts will account for nearly 3 per cent of GDP this year, up from 1.5 per cent in 2008, when tourists from the mainland were just beginning to get visas to the island. By the end of the year, China is expected to increase the quota of its citizens allowed to visit Taiwan.
Chinese officials are loosening their restrictions on travel to Taiwan "to show they're friendly to Taiwan," said Liu Meng-Chun, an economist with the Chung Hwa Economic Research Center. "It's a direct way to increase Taiwan's domestic consumption - just send their tourism groups."