UPDATE 2-Taiwan economy shrinks at record pace, outlook cut

* Economy shrinks by record 10.24 pct y/y

* Government cuts 2009 GDP growth view to -4.25 pct

* Cuts forecast for exports, imports and consumption

(Adds detail, quotes in paras 2-3, 12-14)

By Lee Chyen Yee and Jeanny Kao

TAIPEI, May 21 (Reuters) - Taiwan's export-led economy
shrank a record 10.24 percent in the first quarter, worse than
expected, due to poor exports and dismal private investment,
prompting the statistics agency to cut its full-year growth
forecast.

But the worst should be over for the tech-reliant island,
with analysts and officials expecting the second quarter onwards
to show improvement, especially since growing trade ties with
China is seen spurring domestic consumption.

"I think we have more or less seen the bottom for Taiwan's
GDP, in terms of dollar value, in the first quarter. We will
start seeing improvement in the second, third and fourth
quarters this year," chief statistician Shih Su-mei told a news
conference.

The data comes amid a growing consensus that while the world
economic downturn may have found a bottom it is still too early
to expect anything resembling a rebound in demand and growth.

The government cut its 2009 forecast to an economic
contraction of 4.25 percent from a previous forecast of 2.97
percent, confirming what sources at the national statistics
agency had told Reuters earlier on Thursday.

Earlier on Thursday, Singapore's trade ministry said it saw
signs the country's worst-ever recession was bottoming out after
the economy shrank less than expected in the first quarter.
[ID:nSP404487]

Taiwan's government cut its full-year 2009 forecasts for
exports and imports as well as those for private consumption and
private investments.

Economists in a Reuters poll had expected gross domestic
product to shrink by 9.2 percent, reflecting the trade-dependent
island's exposure to the world economic slump.

GDP has been logging annual falls since the third quarter of
last year, with the contraction widening in general as the
economy's key exports slumped during the worst global downturn
in decades.

PAIN IN ASIA

The first-quarter figure compared with a revised 8.61
percent annual decline in the fourth quarter, which was also a
record then.

On a seasonally adjusted basis, Taiwan's first quarter GDP
was down 1.1 from the previous three months, narrowing from a
contraction of 6.4 percent in the fourth quarter of last year,
said Ma Tie-ying, an economist at DBS in Singapore.

"We should start seeing quarter-on-quarter growth in the
second quarter. The government's infrastructure spending will
take effect in the second half of this year," Ma said.

"With Taiwan's China-friendly policies, more Chinese
tourists have been coming to Taiwan and on their travel spending
alone, they will contribute 0.4 to 0.5 percent to GDP," she
said.

Some economists expect the island's economy to contract by
much less on an annual basis later in the year, when there is
more evidence that the global economy is recovering.

Reflecting the plight of Asia's exporters, South Korea's GDP
fell 4.3 percent in the first quarter from a year earlier, Hong
Kong's dropped 7.8 percent, while Singapore's slumped by 10.1
percent.

Taiwan, together with Japan, Hong Kong and Singapore, are in
recession.

Any pickup in the economy will depend on a clear turnaround
in technology demand since the island is a tech powerhouse with
the world's two biggest microchip makers, TSMC (2330.TW) (TSM.N)
and UMC (2303.TW) (UMC.N).

It also makes about 80 percent of the world's laptop
computers and more than 40 percent of its liquid crystal
displays, or LCDs, used in flat-screen TVs.

An improvement in Chinese and U.S. demand will also help
boost Taiwan's exports since these are its two biggest markets.

On Thursday, the statistics agency revised its 2009 exports
fall to 21.81 percent from its February forecast of 20 percent.

The weak economy has prompted the central bank to cut
interest rates seven times to a record low of 1.25 percent,
though it kept rates steady in March partly due to signs that
the global economy was bottoming out.

The data came after Taiwan's markets closed.

The Taiwan dollar TWD=TP TWD= firmed to T$32.738 to the
U.S. dollar, while the stock market .TWII was up 0.23 percent.
LINKS
> COMMENTARY-Taiwan's GDP: what analysts say.....[ID:nTP258138]
> FACTBOX-Recent comments by Taiwan officials.....[ID:nTP84566]
> FACTBOX-Forecasts of Taiwan's 2009 GDP..........[ID:nTP26584]
> TABLE-Details of Taiwan Q1 GDP report..........[ID:nTP251280]
(Editing by Toby Chopra)