Taiwan’s economy faces several major uncertainties, including slower growth in China, despite receiving a boost from emerging technologies, domestic investments and consumption in the second half of this year, the central bank said in a report on Thursday.
The central bank is concerned that slower GDP growth and weakening domestic demand in China could have spillover effects that hurt economies like Taiwan, which sell a large volume of goods to the Chinese market, the report said.
China’s GDP in the second quarter grew 4.7 percent from a year earlier, below an earlier market estimate of 5.1 percent, the slowest increase since the first quarter of last year.
Photo: Bloomberg
The second-quarter GDP growth also moderated from 5.3 percent in the first quarter.
To mitigate the impact of a supply glut amid weaker domestic demand, China could intensify efforts to sell its goods in global markets, which would potentially exacerbate competition with other export-oriented economies such as Taiwan, the report said.
China’s escalating trade tensions with the US and Europe could also speed up the pace of restructuring in global supply chains and lead to a fragmented global economy, it said.
In such unfavorable circumstances, Taiwanese firms are expected to intensify their efforts to diversify their foreign assets while reducing spending within Taiwan, which could affect the country’s exports and private investments, the central bank said.
Other uncertainties facing Taiwan include a divergence in monetary policies among global central banks, as the US Federal Reserve and the European Central Bank have begun a rate cut cycle.
However, Japan is moving in the opposite direction by raising rates to mitigate pressure from imported inflation, which is expected to influence fund flows, sending ripples through the global stock and foreign exchange markets that would eventually affect the global economy, the report said.
In addition, global trade and financial markets could be haunted by the US presidential election in November, while lingering conflicts in the Middle East and a growing crisis in the Red Sea could hinder global supplies in energy and commodities, which is likely to boost inflationary pressure, it said.
Extreme weather, measures to achieve net zero emissions and aging societies would also exacerbate inflation and produce more uncertainties in the global economy, it added.
On the same day, the central bank raised its forecast for GDP growth this year to 3.82 percent, up from 3.77 percent estimated in June.
It anticipates growth would reach 3.08 percent next year.
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