Taiwan is officially in a recession and is on course to report its first ever full-year economic contraction.

"This year should be the worst year for Taiwan's economy," said an economist at the state-funded Academia Sinica, Wu Chung-Shu.

Economic gloom was heightened after the country's exports to the US, its main market, suffered a serious hit in the wake of the terror attacks on 11 September.

"The third quarter's sharp fall was because of a slowing global economy, which caused Taiwan's exports, private investment and industrial output to drop sharply," a government source said.

But despite this year's troubles, next year looks brighter for the island's economy, which was approved as a future member of the World Trade Organisation last weekend.

"The latest developments in Afghanistan will ease worries and help the US economy recover; a development which surely will benefit Taiwan," said the chief economist of the Industrial Bank of Taiwan, Daniel Chen.

Sharp decline

Taiwan's economy shrunk during July, August and September, with gross domestic product (GDP) falling 4.21%, according to official figures.

The fall was the steepest quarterly decline since 1975 when GDP fell 4.26% during the first three months of the year.

This is a much steeper decline than during the previous three months when GDP fell 2.35%.

Two consecutive quarters of declining economic growth constitute a recession, according to official figures.

Recovery?

Taiwan's sliding economic growth rate is expected to bounce back during the last three months of this year with the full year figure showing a 2.12% contraction, the figures from the Directorate General of Budget, Accounting and Statistics showed.

Next year, Taiwan's economy should grow by 2.23%, according to the latest official predictions, sharply lower than previous estimates of 4.16% GDP growth for 2002.