Cathay Financial Holding Co (國泰金控) yesterday raised its forecast for Taiwan’s economic growth this year from 2.8 percent to 3 percent, saying that robust demand for artificial intelligence (AI) products would help exports come out of the woods.
The projection is lower than the 3.43 percent increase that the Directorate-General of Budget, Accounting and Statistics (DGBAS) predicted last month, as the research team is less optimistic about private investment and consumer spending.
“Upcoming electricity rate hikes would weigh on private consumption and corporate margins,” National Central University economics professor Hsu Chih-chiang (徐之強) said on behalf of the panel.
Photo: Wu Hsin-tien, Taipei Times
Policymakers and experts are due to review electricity rates this month. Government officials have indicated that rate increases across the board are necessary to reflect rising costs and to keep debt-ridden Taiwan Power Co (台電) afloat.
The electricity rate hikes, which are to go into effect next month, would also negatively affect corporate earnings, as industrial and commercial users face steeper adjustments, Hsu said.
As the DGBAS has said that every 10 percent increase in electricity rates would push up inflation by 0.2 percentage points, the Cathay Financial team expects consumer prices to rise 1.9 percent this year, higher than its previous forecast, he said.
Private consumption, the main growth driver last year, would take a backseat this year due to lingering inflationary pressures, weakening “revenge spending” and a high comparison base last year, he said.
Meanwhile, companies are still conservative about capital expenditure, with private investment likely to remain in contraction territory this quarter, as evidenced by poor imports of capital equipment, especially for semiconductors, he said.
Exports would again become a key growth driver, aided by strong global demand for AI equipment and applications, he said.
Taiwan is home to the world’s largest suppliers of high-end chips and servers.
Against that backdrop, the central bank is likely to hold interest rates steady next week and the entire year in a bid to tame inflation and support the economy, Hsu said.
The neutral policy stance would continue even if the US Federal Reserve cuts interest rates in the second half of this year to avoid an economic hard landing in the US, Hsu said.
Taiwan’s central bank has maintained its discount rate at 1.875 percent since March last year.
That rate is quite low, compared with the Fed’s 5.25 to 5.5 percent rate, rendering rate cuts unnecessary for Taiwan’s central bank, he said.
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