Taipei, Oct. 21 (CNA) The Chung-Hua Institution for Economic Research (CIER) has lowered its forecast for export-oriented Taiwan’s gross domestic product (GDP) growth for 2023 to 1.38 percent, citing weakening global demand, but added there is light at the end of the tunnel in the wake of growing emerging technology applications.
At a news conference held Friday, CIER, one of the leading economic think tanks in the country, said the 1.38 percent growth represented a 0.22 percentage point downgrade from its previous estimate of 1.60 percent made in July. However, Taiwan is still expected to enjoy solid domestic consumption in the post COVID-19 era, offsetting the impact of a fall in outbound sales, CIER said.
According to the think tank’s preliminary reading, fragile external sales led Taiwan’s GDP to contract 0.8 percent in the first half of this year.
CIER has been consistently more cautious than the government for 2023.
On Sept. 21, the central bank lowered its forecast for Taiwan’s GDP growth in 2023 to 1.46 percent from a previous prediction of 1.72 percent, before the Directorate General of Budget, Accounting and Statistics (DGBAS) cut its forecast from 2.04 percent in August to 1.61 percent.
Currently, the International Monetary Fund has given the most downbeat estimate, saying last week that Taiwan’s economy will grow only 0.8 percent, a cut from its previous estimate of 1.3 percent made in April.
For 2023, CIER forecast that Taiwan’s private consumption will grow 7.04 percent from a year earlier, an upgrade from the July forecast of a 5.56 percent increase, with CIER President Yeh Chun-hsien (葉俊顯) attributing the upgrade to growing domestic spending.
The growth in private consumption is expected to boost 2023 GDP growth by 3.17 percentage points, according to CIER.
However, the country’s export performance is expected to remain weak, CIER said, forecasting exports in merchandise and services will fall 3.36 percent in 2023, compared with an earlier estimated drop of 3.77, while imports of merchandise and services will fall 3.31 percent this year, compared with an earlier forecast of 3.27 percent decline.
Amid caution over overseas demand amid rising inflation and aggressive rate hikes by the major central banks in the world, CIER said many Taiwanese companies have become reluctant to invest in expansion.
As a result, the think tank said Taiwan’s private investment is expected to fall 6.55 percent in 2023, compared with a previous forecast of a 1.36 percent drop, with capital formation likely to shrink 4.73 percent, compared with an earlier estimate of a 0.42 percent fall.
Although Taiwan has felt the pinch from weaker global demand in 2023, there have been signs the situation is improving on the back of the rising popularity of emerging technologies, in particular in artificial intelligence development, Yeh said.
AI development is expected to encourage Taiwanese tech companies to invest in 2024 due to reviving exports, allowing the local economy to climb out of its current consolidation, he said.
Echoing Yeh, C.C. Lin (林啟超), chief economist of Cathay United Bank, said at a news conference that Taiwan’s exports for 2024 will reverse this year’s weakness on a low comparison base and reduced inventory levels.
CIER forecast Taiwan’s GDP will grow 3.03 percent in 2024 with exports and imports in merchandise and services likely to rise 5.58 percent and 5.81 percent, respectively.
Private investments are expected to grow 2.92 percent in 2024, while private consumption is set to increase by 2.09 percent next year, CIER said.
However, the global economy is likely to see uncertainties such as high interest rates because the Federal Reserve of the United States, the top economy in the world, anticipates interest rates will stay higher for longer to combat inflation, Lin said.
In addition, the weaker-than-expected economic recovery of China, the second largest economy in the world, is likely to pose more challenges to the global economy, Lin said.
After taking into account international crude oil prices and the impact from climate change, CIER said Taiwan’s consumer price index (CPI) is expected to grow 2.24 percent in 2023, which is above the 2 percent alert set by the central bank, but lower than 2.95 percent in 2022.
At the same time, inflationary pressure is expected to continue to moderate, with CPI growth reaching 1.86 percent in 2024, the think tank said.
CIER said Taiwan also needs to remain alert over the outcome of a trade barrier investigation launched by China in April into what Beijing considers trade restriction measures taken by Taiwan against China, as that could impact the Economic Cooperation Framework Agreement signed by Taiwan and China in June 2010.