* Q2 GDP growth below forecast, lowest since early 2012
* Collapse in exports hits economy
* Government to downgrade full year GDP forecast
* Central bank can’t do much -analyst (Adds further analyst comments, context on monetary policy)
By Faith Hung and J.R. Wu
TAIPEI, July 31 (Reuters) - Taiwan’s economic growth slowed more sharply than expected to a three-year low in the second quarter, hurt by a collapse in exports as a slowdown in major market China chilled demand for its line of key technology products.
The growth slump in Taiwan, an important hub in the global supply-chain for tech giants such as Apple Inc. and Hewlett-Packard Co, reflects a broad downturn in exports in regional economies with close trade ties to struggling China.
Gross domestic product grew 0.64 percent year-on-year, sharply below the 2.67 percent forecast by analysts, and the weakest rate since the second quarter of 2012, data from the Directorate General of Budget, Accounting and Statistics showed.
The number was also much weaker than the annual 3.37 percent growth in the first quarter, and prompted many analysts to downgrade their full year forecasts, with the statistics agency also saying it would cut the current 3.28 percent full year GDP target next month.
“The big problem is weak overseas demand from China and other markets. The only market that has had stable demand is the United States,” said Andy Lu, analyst with Taipei-based Taishin Securities.
Lu said the central bank could do little about the weak external demand, while other analysts believe policy makers would be forced to retain the current accommodative monetary stance for a prolonged period.
In June, the central bank kept the discount rate - the rate at which the central bank lends to financial institutions mainly for short term purposes - at 1.875 percent, where it has been since July 2011.
On a quarter-on-quarter seasonally adjusted annualized basis, GDP contracted 7.65 percent, highlighting the negative impact on growth from the slump in exports.
Exports, the main driver of Taiwan’s economy, shrank 9.8 percent in the second quarter from the year-ago period.
June export orders - which typically lead actual exports by 2-3 months - contracted 5.8 percent in an indication that the economy continues to struggle in the current quarter.
“Given the scale of the slowdown, we will need to take down our 3.0% forecast for 2015,” said Gareth Leather, Asia economist at Capital Economics in a note to client.
Indeed, some companies are already tempering expectations ahead of the typically strong Christmas shopping season.
AU Optronics, the world’s No.4 flat panel maker, warned investors in a briefing on Tuesday that the company is cautious about business in the second half of the year.
Domestic demand has just started to pick up though a sluggish stock market and a cooling property sector have kept consumers wary.
Taiwan cabinet recently introduced a stimulus package to boost exports and investments, but high debt levels mean the government won’t be able to substantially boost spending.
“There will be a limit to how much support the government is able to provide to the economy,” Capital Economics’ Leather said.
Editing by Shri Navaratnam