Taiwan's economy has contracted in the second quarter by 0.16 percent, according to official data. Analysts surveyed by Bloomberg had expected it to grow by as much as 0.5 percent.

“With deteriorating of European debt crisis and slowdown in major economies, the global demand is expected to decelerate and the outlook of world trade in 2012 is fragile,” according to a statement by the Taiwan statistics and budget authority.

The growth prospect for 2012 has been brought down to 2.1 percent from a previous estimate of three percent. In the first quarter the Taiwanese economy grew 0.4 percent.

The central bank is taking measures to encourage lending and boost growth; earlier this month it lowered its overnight interest rate. Taiwan has been trying to grow above the sedate global rate, but sluggish sales of computers and smartphones have weighted down the economy. Electronics and communications technology account for half of the country's exports.

But things are expected to pick up as China's recent loosening measures overflow into Taiwan. The government has also recently passed a much anticipated capital gains tax, the revenues of which can be converted into increased spending.