Tue, Jun 03, 2025 page8

• EDITORIAL: The economy demands caution

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  Taiwan’s economy is forecast to grow 3.1 percent year-on-year this year, driven by steady demand for the electronic components (including semiconductors) and information and communications technology products amid the artificial intelligence (AI) boom, the Directorate-General of Budget, Accounting and Statistics (DGBAS) reported last week. Yet this prediction comes with a caveat: The economic momentum would likely be robust in the first half of the year, as GDP is projected to increase by an annual rate of 5.35 percent, but in the second half, it might weaken sharply with growth of just 1 percent from a year earlier. The decelerated growth in the bottom half is mainly due to US tariff policy that could affect foreign trade and domestic demand in consumer spending, investments and exports, the DGBAS said.

  The 1 percent growth for the second half of the year is a downward adjustment from the agency’s previous 2.93 percent estimate and would be the lowest expansion for the same period over the past two-and-a-half years. Exports of goods and services are projected to contract by 3.2 percent, and private investment is forecast to decline 0.73 percent, while private consumption is predicted to grow 1.87 percent in the second half compared with a year ago, all worse than the original forecasts.

  Despite soaring demand for the AI-related semiconductors and servers that Taiwan excels at producing, the nation’s economic growth is not without risks, as US President Donald Trump’s tariffs and the US government’s ongoing review of export controls and sanctions on Chinese goods could impact Taiwan’s export-driven economy. There are also challenges for the domestic job market and household incomes.

  The uncertainty of Trump’s tariff policy has intensified financial market volatility and raised household financial risks. If the job market becomes more severe, it might also affect debt repayment, necessitating close observation of changes in the debt servicing capacity of some households with higher debt burdens, the central bank said in its annual financial stability report last week.

  The report showed that household borrowing expanded continuously last year, reaching NT$23.7 trillion (US$790.3 billion), equivalent to 92.62 percent of Taiwan’s GDP, up from 90.27 percent the previous year and higher than those in the US, Japan and South Korea. The main purpose of household borrowing last year was to purchase real-estate, accounting for 61.29 percent of total borrowing, followed by 36.59 percent for working capital needs, the report found.

  Owing to a higher annual growth of 11.52 percent in Taiwan’s household borrowing last year, coupled with the ratio of household borrowing to total disposable income rising 1.52 times in the year, the increasing debt burden for the household sector warrants close attention, the report said.

  By and large, Taiwan’s indebted household sector is susceptible to job losses and real income declines caused by increases in public utility rates and train tickets, as well as the effects of Trump’s tariffs.

  While the household sector’s strong net worth — at more than eight times the nation’s GDP in 2023 — should help cushion the impact of any adverse shocks, Taiwan’s high household debt would still weigh on consumption and affect the nation’s economic growth in the long term.

  Overall, the uncertainty of US trade policies has caused significant fluctuations in global financial markets, and the spillover effect of a tightening financial situation might affect the growth of global and domestic economies, putting pressure on Taiwanese companies and the debt repayment capacity of the household sector. It would also indirectly affect the real-estate market. Against that backdrop, the government must pay close attention to the effects of global trade developments, hoping for the best and preparing for the worst.
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