Joining a growing list of institutions cutting their forecasts of Taiwan’s economy growth, Singapore-based DBS Bank has cut its estimate of the country’s gross domestic product (GDP) rise to 3.4 percent for 2022, citing the impact of rising inflation and monetary policy tightening by the U.S. Federal Reserve.
In a statement released on Thursday, DBS said it has revised downward Taiwan’s GDP growth forecast for 2022 from an expected 3.8 percent made in April, while the banking group has forecast the country’s consumer price index (CPI) for 2022 will grow 3 percent, well above the 2 percent alert level set by the local central bank.
This week, Academia Sinica, the top research institute in Taiwan, has lowered its forecast from 3.85 percent to 3.52 percent for 2022, while the Chung-Hua Institution for Economic Research (CIER), one of the leading think tanks in Taiwan, has also cut its forecast from 3.96 percent to 3.56 percent.
In late May, the Directorate General of Budget, Accounting and Statistics (DGBAS) lowered its forecast of Taiwan’s GDP growth to 3.91 percent from 4.42 percent, citing weakening private consumption. The DGBAS is expected to update its forecast in August.
Rising inflation
In the statement, Ma Tieying (馬鐵英), a senior economist with DBS, said the Russian invasion of Ukraine has boosted Taiwan’s inflation with prices for energy, grains, meat and eggs on the rise.
In June, Taiwan’s CPI rose 3.59 percent year-on-year, the highest level in nearly 14 years, but the DGBAS expects the growth will be moderating for the rest of the year.
Echoing the DGBAS, Ma said Taiwan’s CPI growth could peak in June and it is possible for the growth to moderate to below the 3 percent mark by the end of this year, but she said she remained cautious about uncertainties from international energy and grain prices as well as electricity tariff adjustments in the second half of this year.
Ma said she was also concerned over the Fed’s tightening as rate hikes have created downside risks in the U.S. economy, the world’s largest. According to DBS, the U.S. market was one of the major buyers of Taiwan-made goods and accounted for 30 percent of Taiwan’s total exports in 2021.
Supply chain interruptions
In addition, Ma said China’s lockdowns on many of its industrial cities such as Shanghai, Kunshan and Suzhou, against COVID-19 infections have sent higher-than-expected interruptions to the global supply chain.
The economist said while many Taiwanese manufacturers have sought to diversify their production, China remained the largest offshore production site for Taiwan and the biggest destination for Taiwan-made goods.
Ma said a spike in domestically transmitted COVID-19 cases in Taiwan also took a toll on private consumption, in particular during April-May, but due to a higher immunity along with the government’s possible move to further ease border control, Taiwan’s private consumption will bottom out at the end of the third quarter and continue to recover in the fourth quarter.
DBS has anticipated Taiwan’s GDP will grow 3 percent, 4.5 percent, and 2.8 percent, respectively, in the second, third and fourth quarter of this year.
Ma said Taiwan’s economy will likely depend on a recovery in private consumption in the second half of this year, while the country’s exports and investments could be affected by slower global demand for tech items.
Compared with neighboring economies
Despite a cut in Taiwan’s GDP forecast for 2022, Ma said Taiwan is expected to outperform South Korea and Hong Kong, the economies of which are expected to grow by 2.8 percent and 1.2 percent, respectively, as Taiwan’s central bank is expected to continue its mild approach to raising its key interest rates.
In addition, as Taiwan’s semiconductor industry has a more diversified product mix from memory chips to high performance computing devices to chips used in the Internet of Things, Taiwanese semiconductor suppliers are expected to remain resilient to weakening global demand, Ma said.
Taiwan, however, is likely to trail behind Singapore, where GDP growth is expected to hit 3.5 percent, according to DBS.
As for 2023, DBS has also lowered its forecast of Taiwan’s GDP growth to 2.8 percent from 3 percent, while anticipating the CPI growth will hit 1.8 percent.
Source: Focus Taiwan News Channel