Taiwan's economy shrank by 0.16 percent in the second quarter from a year ago, the first contraction in nearly three years, as the island was hit by weak export markets, according to the government.
The preliminary figure, issued by the Directorate General of Budget, Accounting and Statistics on Tuesday, compared with growth of 0.39 percent in the first quarter.
"The optimism that had gradually built up in the beginning of the year has changed to pessimism," the directorate general said in a statement.
The last time Taiwan saw a quarterly contraction was in the third quarter of 2009, when the economy declined 1.41 percent from a year earlier.
The directorate general's forecast for economic growth in the full year 2012 was 2.08 percent, down from a prediction of 3.03 percent made two months ago.
The trade-dependent island has been particularly impacted by a weakening economy in China, its main trading partner.
Taiwan said earlier that export orders in June fell 2.62 percent year on year to $36.38 billion, the fourth consecutive monthly decline.