Economy expansion estimation by Cathay revised to 4.5%
In recent times, non-tech manufacturers and service providers in Taiwan have experienced a stalled business momentum, echoing a broader trend of sluggish private consumption this year. The central bank's mortgage restrictions and warnings over rising housing loan rates have undermined sentiment in the housing market, with tighter mortgage rules depressing housing transactions and affecting real-estate agencies.
However, there are signs of optimism. The US Federal Reserve is widely anticipated to cut rates by 25 basis points at its meeting and potentially follow with additional reductions later this year and into next year. These cuts, along with growing expectations of US Federal Reserve rate cuts, have kept financial conditions accommodative, easing concerns over tariffs that had previously weighed on Taiwan's exports.
The robust economy of Taiwan, as evidenced by stronger-than-expected exports, particularly in artificial intelligence components, has led to a revision of the economic growth forecast for the year. Cathay Financial Holding Co revised Taiwan's economic growth forecast for the year to 4.5 percent, up from 2.8 percent. This revision was due to the stronger-than-anticipated demand for AI, which has offset the impact of tariffs.
Looking ahead, GDP growth could slow to 2 percent next year, as headwinds are likely to affect most industries, corporate earnings, and employment. The government's planned cash handouts might offer a temporary lift to consumer spending in the fourth quarter.
Despite the expected Fed rate cuts, Hsu, an economist whose name is not publicly available, stated that Taiwan's robust economy leaves no need or room for the central bank to cut interest rates. The central bank is expected to leave its policy rate unchanged at its quarterly board meeting on Thursday.
Taiwan's relationship with its second-largest trading partner, China, adds uncertainty. US tariffs might dampen global demand and weigh on Taiwan's exports. However, Hsu cautioned that the picture might shift next year as tariffs take a deeper toll on the job market.
Advances in AI and robotics could spur fresh investment and accelerate Taiwan's industrial transformation. This could provide a much-needed boost to the economy in the face of the challenges posed by sluggish private consumption and potential tariff impacts.
[Caption: A bustling scene in Taipei, Taiwan. Photo courtesy of CNA.]
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