TAIWAN: Taiwan’s economy might grow 3.8 percent this year amid robust external demand, but might only gain 1.7 percent next year, as key export drivers such as chips are losing steam, Moody’s Analytics said yesterday.
The Asia-Pacific region, including Taiwan, is outpacing most of the world’s economies with regional GDP growth expected to average 3.9 percent this year and 4 percent next year, faster than expected global GDP growth of 2.6 percent and 2.7 percent respectively, the research body said.
However, economic conditions within the region vary widely, it said.
Taiwan has enjoyed robust growth in exports thanks to the rise of artificial intelligence (AI), which has fueled demand for advanced semiconductors, it said.
Taiwan’s exports in the first eight months of this year expanded 10.9 percent year-on-year to US$308.57 billion, thanks to demand for electronics used in cloud-based data centers and the development of AI applications, government data showed.
The AI boom has not lifted Southeast Asia, which mainly produces low to mid-tier chips. Trade has played a key driver of growth for much of the region, but its impact has been uneven, Moody’s Analytics said.
Nevertheless, external demand in the region has been treading water due to slowing US growth and Europe’s stalled economy, it said.
Specifically, growth in global chip billings has decreased in the past few months, suggesting that shipments of tech products would decline, with no guarantee that domestic demand would offset the drop, Moody’s Analytics said.
At the same time, consumer prices are cooling in the region despite intermittent hiccups linked to bad weathers, it said, as is the case with Taiwan.
Moody’s Analytics said that inflation is mostly in line with central bank targets even though risks are still skewed toward inflation overshooting rather than undershooting.
Food prices are jumpy and energy prices hover above pre-pandemic averages, it said, noting that a flare-up in commodity prices could stoke inflation and fuel monetary tightening.
Taiwan’s central bank last week left key policy rates intact, but hiked the required reserve ratio and stiffened lending terms to rein in the housing market, at odds with a rate cut by the US Federal Reserve to support the economy.
Meanwhile, elections in the US and Europe would further complicate the growth outlook, it said.
Potential shifts in US economic policy following the presidential election in November are a major concern, as US exports drive growth for much of the region, it said, adding that economies heavily dependent on strong US ties would be most affected.
The US has grown into Taiwan’s second-largest export destination due to a rapid increase in shipments of AI-related electronics.
Moody’s Analytics expects regional currencies to appreciate going forward after the US Federal Reserve cut interest rates by 50 basis points last week and its median projections suggest more cuts of 50 basis points toward the end of this year.
