Two international banks have trimmed their growth forecasts for Taiwan this year, as poor external demand drags down the export-oriented economy, although a turnaround is approaching.
The Asian Development Bank (ADB) yesterday lowered its growth projection for Taiwan from 2 percent to 1.5 percent, saying that monetary tightening in advanced economies has weighed on Taiwanese exports of electronics and other manufactured goods.
One day earlier, Singapore-based DBS Bank cut its growth forecast for Taiwan from 1.6 percent to 0.5 percent.
Photo: Cheng I-hwa, Bloomberg
“Asia and the Pacific continue to recover from the COVID-19 pandemic at a steady pace,” ADB chief economist Albert Park said on the bank’s Web site.
Domestic demand and services activity are driving growth, while many economies also benefit from a strong recovery in tourism, ADB said.
Industrial activity and exports remain weak and the outlook for global growth and demand next year has worsened, it said.
China’s reopening is bolstering the region’s growth, it said, expecting the Chinese economy to expand 5 percent this year, unchanged from its April forecast, amid strong domestic demand in the services sector.
By contrast, demand for developing Asia’s exports of electronics and other manufactured goods is slowing, as monetary tightening drags on economic activity in major advanced economies, it said.
Inflation in developing Asia is forecast at 3.6 percent this year, down from its April forecast of 4.2 percent, it said.
However, it slightly revised up its inflation outlook for next year to 3.4 percent from 3.3 percent.
On Tuesday, DBS Bank slashed its growth forecast for Taiwan from 1.6 percent to 0.5 percent on disappointing exports among other data, and as inventory adjustments persist.
Despite the artificial intelligence craze and stock market rally, Taiwan’s economy remains exposed to short-term downside risks, DBS economist Ma Tieying (馬鐵英) said during a teleconference.
“We maintain our GDP forecast [for Taiwan] below the market consensus at 0.5 percent this year and raise the inflation forecast up to 2.3 percent from 2 percent,” she said.
While export demand is in the process of bottoming, inventory destocking lingers, she said.
Both credit growth and property prices are undergoing a deeper-than-expected correction, Ma said.
Nevertheless, household consumption and the labor market have held relatively resilient, the economist said.
Exports might come out of the woods next quarter, with inflation to remain at about 2 percent in the near future, Ma said, citing the government’s leading indicators.
The central bank has shifted to a neutral stance and is likely to keep rates unchanged during its policy meeting in September and December, Ma said.
The Philadelphia Semiconductor Index recently began to rally, driven by the AI craze, which points to a positive outlook for the sector in the next six months, DBS said.
TAIEX showings are closely related to the US index, as Taiwan is home to the world’s largest chip suppliers.
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