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GDP data for Q4 2008 confirms that the bottom has fallen out for the island Republic…

Taiwanese GDP released today for Q4 2008 showed a year over year contraction of -8.36%, marking the worst recorded performance for the economy of the ROC, declining more sharply than during either the post tech bubble recession in 2000-01 or the drop in 1974-75 following the end of US involvement in Vietnam.

The Central Bank’s reaction to the data was a 25 basis point cut reducing the benchmark 10 Day Loan Rate to 1.25%, the seventh cut approved by the Board of Governors in the past four months.

The government stimulus program unveiled last year includes 320 billion TWD to be spent on public works projects in 2009 but, with global demand contracting at a such a sharp pace, there seems little doubt that ultimately the driving force for recovery in the export dependent island economy will be measures taken in Beijing rather than Taipei.

As “Panda diplomacy” softens the road to closer ties with the mainland, the hard ideological divide of the past will likely give way to further pragmatic trade agreements like those adopted late last year which opened the way for direct shipments to mainland ports for the first time.

Andrew Barber