Cathay raises GDP growth forecast to 11.6%

OPTIMISTIC OUTLOOK: Growth may slow down next year, but the financial company thinks that this year’s economic growth will surpass 10 percent through the AI boom

• By Crystal Hsu / Staff reporter

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Cathay Financial Holding Co (國泰金控) yesterday raised its forecast for Taiwan’s economic growth this year to 11.6 percent from 10.1 percent, citing stronger-than-expected artificial intelligence (AI) demand, robust exports and continued investment in AI infrastructure.

The upgrade highlights the strength of Taiwan’s AI-driven expansion, with technology exports and investment continuing to outperform expectations and offsetting weakness in other parts of the economy.

The research team, led by National Central University economics professor Hsu Chih-chiang (徐之強), forecast 5.1 percent growth for next year, as this year’s unusually strong expansion creates a high comparison base.

Cathay Financial Holding Co economic research department assistant manager Achilles Chen, center, National Central University economics professor Hsu Chih-chiang, third right, and other research team members pose for a photograph at a news conference in Taipei yesterday.

Photo: Wu Hsin-tien, Taipei Times

Hsu, co-director of the research program, said the growing adoption of AI by businesses should give US cloud service providers more room to increase capital spending, supporting Taiwan’s exports and investment in the second half of the year.

Taiwan’s exports reached a record US$82.4 billion last month, driven by strong demand for AI-related hardware and high-performance computing products.

The team expects the economy to grow about 9 percent in the second half, slightly above the 8 percent forecast by the Directorate-General of Budget, Accounting and Statistics. The economy expanded 14 percent in the first six months, while third-quarter growth is expected to remain in double digits, it said.

While the economic growth is likely to moderate next year, AI demand is expected to remain an important source of support, Hsu said.

The team forecast consumer inflation would grow 2.1 percent this year, broadly in line with the government’s 2.07 percent projection, before easing to 1.9 percent next year.

The central bank is expected to leave its benchmark interest rate unchanged at its board meeting on Thursday, despite inflation remaining above its 2 percent warning threshold for the past four straight months, Hsu said.

The central bank is likely to monitor price pressures and US Federal Reserve policy before considering any tightening later this year, he said.

The team expects the central bank to refrain from tightening housing credit controls, as transactions have slowed and prices have largely stagnated.

Hsu said rising US Treasury yields could make bonds more attractive relative to equities, putting additional pressure on stocks, particularly technology shares.

A more serious risk would be an inversion of the US yield curve, he said, as it could signal deeper concerns about the economic outlook.