The nation’s economy could rebound over the next few quarters, in line with an expected turnaround for Asian countries, Taiwan Ratings Corp (中華信評) said yesterday.
The Taipei-based institute, which is the local subsidiary of S&P Global Ratings, announced its observation after S&P cut its forecast for Taiwan’s GDP growth this year from 1.5 percent to 0.5 percent.
“Both tech and non-tech companies took a hard hit to their businesses from destocking across supply chains,” corporate credit analyst Raymond Hsu (許智清) said.
Photo: Sam Yeh, AFP
External demand might improve despite lingering downside risks, Hsu said.
New artificial intelligence (AI) applications also would stimulate demand for Taiwan-made electronics, although the benefit would be limited this year and grow more evident next year and beyond, he said.
“AI servers account for a small part of revenue at local suppliers,” he said.
Share prices in related firms have more than doubled in the past few months, prompting some stock analysts to voice bubble concerns.
As exports remain an important driver for Taiwan’s economy, slow global economic growth could limit the pace of recovery, Hsu said.
Taiwan Ratings said that demand in the US and Europe could remain weak throughout this year.
However, restocking demand is around the corner and could lift Taiwan’s exports, it said, adding that technology giants are about to release new products, benefiting local firms in their supply chains.
The diversification of manufacturing away from China could also support Taiwan’s export growth amid a technology standoff between the US and China, Taiwan Ratings said.
Meanwhile, private consumption could remain healthy after the government ditched COVID-19 restrictions last year, allowing normal consumption and discretionary spending, it said.
Private investment would tell a different story, as macroeconomic uncertainties would continue to weigh on corporate capital expenditure over the next few quarters, it said, citing the restructuring of the global supply chain, inflationary pressure, geopolitical tensions and tightening monetary policies.
Against that backdrop, Taiwan could squeeze out moderate growth over the next few quarters and achieve GDP growth of 0.5 percent for this year, it said.
Downside risks facing Taiwanese companies include a hard landing for the global economy, as major central banks press ahead with monetary tightening to fight inflation, Hsu said, adding that interest rate hikes would depress demand and exports.
Further, China’s economic recovery has disappointed thus far, which is unfavorable for Taiwan in light of its heavy reliance on the Chinese market, he said.
At the same time, inflation has not subsided enough and might come back, increasing cost pressures on borrowers, he added.
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