* Q2 GDP +2.41% y/y, best quarter in a year
* ‘Returning production’ from China helps - analysts
* DBS says ‘shouldn’t be difficult’ for 2% growth to stay
* But new China travel policy likely to hit Taiwan tourism
TAIPEI, July 31 (Reuters) - Taiwan’s economy grew more quickly than forecast in the second quarter, preliminary data showed on Wednesday, lifted in part by “returning production” coming to the island from China amid the Sino-U.S. trade war.
The moving by some Taiwan manufacturers of parts of their supply chain, plus gains from net exports, helped Taiwan have its stronger growth in a year in April-June.
Second quarter gross domestic product expanded 2.41% from a year earlier, the statistics agency said. That easily topped the 1.8% Reuters poll forecast and the first quarter’s 1.71%.
The statistics agency credited “better-than-expected exports and domestic investment”.
The agency said exports grew 4.11% in Q2, while imports grew 3.69%, and on a net basis exports contributed 0.72 percentage points to Q2 growth.
Wednesday’s preliminary figure will be finalised in two to three weeks.
Ma Tieying, an economist with DBS, said the higher-than-expected growth “reflects returned production from Taiwanese manufacturers on the mainland”.
But she said it is “uncertain whether we will see a trend of recovery in the second half,” citing lingering concerns over the trade war and growing regional trade protectionism including the trade dispute between Japan and South Korea.
Still, “it shouldn’t be too difficult for Taiwan to keep the annual growth rate at above 2%,” Ma said.
In May, the government lowered its 2019 growth forecast to 2.19% from 2.27%, as sluggish global demand dragged on the island’s economy.
KGI Securities economist Carl Liu said Q2 growth was partly boosted by a strong increase of Chinese tourists to the island, but a ban announced on Wednesday on Chinese individual tourists to Taiwan could reduce the island’s annual GDP growth by 0.2 percentage points.
Capital Economics said Taiwan’s tourism sector is “likely to be badly hit” by Wednesday’s announcement. It also said that while the tech slump may be bottoming out, it doubts the second quarter marks the start of a sustained upturn for Taiwan.
“Our forecast is that global growth will weaken further over the coming quarters, which will hit demand for Taiwan’s exports,” Capital Economics said.
Taiwan’s export orders, a leading indicator of actual exports in coming months, fell for an eighth straight month in June, as global companies were slow to make new investments in machinery while the Sino-U.S. trade war wears on.
Slowing technology demand, the trade war and U.S. restrictions on Chinese tech giants have hit manufacturers in Asia.
Chipmaker TSMC in July reported a 7.6% drop in profit for April-June due to sluggish demand, but it gave an upbeat forecast for coming months thanks to expected robust demand for 5G chips. (Reporting by Yimou Lee, Emily Chan and Jeanny Kao; Editing by Richard Borsuk)