Cathay Financial Holding Co (國泰金控) yesterday steeply raised its economic growth forecast for this year from 4.5 percent to 7.4 percent, as the surge in global artificial intelligence (AI) investments has more than offset uncertainty linked to US tariffs and propelled exports far beyond expectations.
That momentum is expected to remain strong into next year despite a high base, with growth forecast to reach 3 percent, up from 2 percent, National Central University economics professor Hsu Chih-chiang (徐之強) said, speaking on behalf of a research team commissioned by Cathay Financial.
“There is an 80 percent probability that economic expansion next year will fall between 1.5 percent and 4.5 percent,” Hsu said.
Photo: Wu Hsin-tien, Taipei Times
The upgrade reflected stronger-than-expected performance so far this year, driven by rapidly rising demand for advanced semiconductors and a rush to ship goods during tariff exemption periods, he said.
Taiwan’s economic growth looks set to exceed 8 percent in the second half of this year, beating earlier expectations by a wide margin, he added.
The economic climate for the first quarter of next year remains “bright,” as AI investments continue to gain traction, while domestic consumption receives support from government stimulus and wealth effects from the stock market, Hsu said.
The government’s NT$10,000 (US$319) cash handout is expected to deliver its most visible boost to consumption this quarter and in the first quarter of next year, he said.
Even if some of the funds are channeled into financial markets rather than direct spending, the money would still support private consumption by boosting transaction fees and financial services activity, he added.
However, overseas travel — particularly to Japan — could dilute the impact, as related spending is recorded as imports.
The Directorate-General of Budget, Accounting and Statistics said it expected the stimulus to add about 0.5 percentage points to private consumption.
Cathay Financial expects the US Federal Reserve to carry out one to two interest rate cuts next year, Hsu said, adding that the timing and pace of the cuts would become clearer after a new Fed chair is appointed and updated policy projects are released.
Meanwhile, the central bank is expected to keep policy rates unchanged at its board meeting on Thursday and throughout next year, as inflationary pressures remain contained and economic growth stays robust, he said.
Market expectations of a more dovish Fed leadership could weigh on the US dollar, with the US dollar index likely to trade with a softer bias, Hsu said.
That would support a stronger New Taiwan dollar next year, although its actual trajectory would still depend on broader Asian currency movements and geopolitical risks, which could quickly revive demand for the greenback, he said.
Factors such as the global AI boom, US tariffs, China’s stimulus efforts and property market developments, and Taiwan’s energy supply would weigh on the nation’s economic outlook, he added.
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