Taipei - A government-funded economic think tank on Friday forecast that Taiwan's economy would shrink 3.56 per cent this year, a smaller decline compared with the 4.25-per-cent contraction predicted by the government.

The contraction was due mainly to export declines, plunging private investment and rising unemployment amid shrinking global demand, the Chung Hua Institution for Economic Research said in a statement.

The 3.56-per-cent contraction was slightly smaller than the 3.59 per cent forecast by the think tank in May, it said.

The think tank predicted a contraction of 6.12 per cent in Taiwan's gross domestic product (GDP) for the second quarter and 1.92 per cent for the third quarter before a rebound of 4.48 per cent in GDP growth for the fourth quarter.

It gave the 2009 unemployment rate at 5.83 per cent and inflation at 3.61 per cent. (dpa)