A wayward typhoon blew Taiwan, its economy and related exchange traded fund (ETF), off course, but the country could straighten itself out with some help.

Economists expect Typhoon Morakot to have a negative impact on third quarter GDP results because of damage to infrastructure, agriculture, tourism and several traditional industries, writes Lee Chyen Yee for Reuters. The government has vowed to spend $3 billion over the next three years for reconstruction.

A Reuters poll shows that Taiwan’s economy may suffer its largest contraction on record this year, but it could make a speedy recovery next year on post-typhoon reconstruction and increased exports to China and the United States, according to Alibaba. The poll forecasts a median 4.1% GDP contraction for 2009 and a 4.0% expansion for 2010.

The Taiwanese economy fell 7.5% year-over-year, its fourth straight quarterly annual decline, however, the drop was smaller than the first quarter’s 10.1% contraction, reports Daniel Ong Kian Hong for The Wall Street Journal. The quarterly expansion prompted the government to forecast a 4% decline for 2009, up from a previous 4.25% estimate.

Economists notice that Taiwan is exhibiting a “V-shaped” recovery similar to its neighbors. But unlike its neighbors, it is showing a weaker response among the Asian tiger economies. Further supporting a recovery, Taiwan’s big tech companies, who are traditionally the economy’s growth engines, have also been increasing capital-expenditure projections.

  • iShares MSCI Taiwan Index (EWT): up 43.9% year-to-date


For more information on Taiwan, visit our Taiwan category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.