Cathay Financial Holding Co (國泰金控) yesterday adjusted upward its forecast for the nation’s GDP growth this year from 3 percent to 5.8 percent, citing robust growth momentum seen so far this year, driven by artificial intelligence (AI)-related exports and investment demand.
As the situation in the Middle East remains fluid, the probability of GDP growth this year falling to between 3 percent and 8 percent is about 80 percent, National Central University economics professor Hsu Chih-chiang (徐之強) told a news conference in Taipei.
Hsu heads a research team commissioned by Cathay Financial. The team’s previous forecast was an 80 percent probability that the economy would expand between 1.5 percent and 4.5 percent in the year.
Photo: CNA
The Directorate-General of Budget, Accounting and Statistics last month raised its GDP growth forecast to 7.71 percent for this year, from its November estimate of 3.54 percent. That forecast reflected the effect of strong exports seen earlier this year, but was made before the Middle East war started with US and Israeli attacks on Iran about two weeks ago.
International oil prices have risen by more than 40 percent since then, Hsu said. Based on the research team’s model, if the 40 percent increase in oil prices continues for more than one quarter, Taiwan’s economic growth would decline by about 1.2 percentage points, he said.
The research team forecast a 60 percent probability that Taiwan’s economic climate in the second quarter could shift from “bright,” meaning stable growth, to “cloudy,” implying weakening, if the war in the Middle East persists, he said.
The research team also revised its inflation forecast slightly higher to 1.8 percent, from 1.6 percent, reflecting uncertainty surrounding global oil prices and potential passthrough effects on importation costs, as well as potential price hikes on IC products, Hsu said.
The central bank is expected to keep its policy rates unchanged at its quarterly board meeting on Thursday, as the consumer price index grew just 1.23 percent on average in the first two months of this year, he said.
Overall, five major factors could affect Taiwan’s economic outlook this year, including geopolitical tensions in the Middle East, US tariff policies, companies building out AI infrastructure, the new US Federal Reserve chairman’s policy stance, and China’s fiscal and monetary policies, Hsu said.
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