Economy on track for strong growth, driven by AI: DBS

• By Crystal Hsu / Staff reporter

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Taiwan’s economy is on track for strong growth this year, driven by booming artificial intelligence (AI) demand, resilient exports and investment, and government efforts to shield consumers from higher energy costs, DBS Bank Ltd said yesterday.

The Singapore-based bank maintained its forecast for Taiwan’s GDP growth at 11.6 percent this year and 5.6 percent next year, DBS senior economist Ma Tieying (馬鐵英) said at a news conference in Taipei.

“The AI cycle remains the key driver of Taiwan’s growth,” Ma said, adding that information and communication products and electronic components accounted for almost 80 percent of the nation’s exports in the first nine months of this year.

DBS Bank Ltd senior economist Ma Tieying, left, and DBS Bank Taiwan senior vice president Chen Yu-chia pose for a photograph at a news conference in Taipei yesterday.

Photo courtesy of DBS Bank Taiwan

Export growth is expected to ease back from unusually high levels from this quarter, but remain robust, broadly tracking capital spending by US cloud service providers and semiconductor sales, she said, adding that Taiwan’s investment should follow a similar trajectory.

Technology companies continue to report strong revenue growth, particularly in semiconductors, servers and personal computers, Ma said.

Rising capacity utilization at leading Taiwanese foundries points to sustained investment demand, she said.

The AI boom is beginning to support domestic demand through growing financial wealth and wages, Ma said. The TAIEX has climbed about 70 percent this year, lifting Taiwan’s stock market capitalization to the world’s fifth largest, she said.

Equities and mutual funds account for almost 30 percent of household financial assets, leaving households better positioned to benefit from rising share prices, she added.

The stock rally has boosted incomes, with wage growth picking up in the services sector, particularly financial services, Ma said.

Strong earnings at financial institutions, especially securities firms, have prompted higher compensation as companies compete to retain talent, she said.

These wealth and income gains should underpin household consumption, she added.

DBS said consumer price growth remains broadly in line with its expectations for inflation.

The bank expects headline inflation to stay close to 2.5 percent this quarter, while maintaining its full-year forecasts of 2 percent this year and 2.1 percent for next year, it said.

Ma said government efforts to contain energy prices have helped limit the impact of higher energy costs on consumers, with state-run CPC Corp, Taiwan (台灣中油) and Taipower Co (台電) absorbing much of the increase.

Mounting losses at the two state-owned companies could put pressure on the government to reconsider its approach, she said.

Authorities need to decide whether to provide additional subsidies to cover the shortfalls or allow increases in domestic energy prices, particularly after local elections next month, Ma said.