Cathay Financial Upgrades Taiwan's 2024 GDP Growth Forecast to 10.1% Amid AI Boom

Central News Agency

(Taipei, April 17, reporter Su Sih-Yun) The Cathay-NTU team today announced it has upgraded Taiwan's 2024 economic growth forecast from 5.8% to 10.1%, attributing the revision to continued upward adjustments in capital expenditures for AI infrastructure, record-high stock markets, and a rebound in tourism. The team described this year's economic performance as "nothing short of earth-shattering" and predicted that the Central Bank of Taiwan will keep interest rates unchanged at its board meeting on the 18th.

Cathay Financial held its Q2 2024 Taiwan "Economic Climate and Financial Outlook" press conference this afternoon.

Professor Hsu Shih-Hsun of the Cathay-NTU industry-academia collaboration program noted that while the International Monetary Fund (IMF) downgraded its global growth forecast for 2024 from 3.3% to 3.1%, both the U.S. and Taiwan are benefiting from the AI industry boom. Sustained upward revisions in cloud and AI infrastructure capital spending by major tech firms are driving semiconductor-related exports from Taiwan. Combined with improved private consumption fueled by record stock market highs and tourism recovery, the team raised its 2024 GDP growth forecast for Taiwan from 5.8% to 10.1%.

Hsu explained that the last time Taiwan's economic growth exceeded 10% was in 2010, driven by post-financial crisis rebound. This year's projected 10.1% growth, however, is entirely driven by the AI industry, marking a fundamentally different driver. The team expressed confidence in achieving this target. Additionally, while the government has been controlling fuel prices, sticky inflation in sectors like dining out has been slow to cool, prompting a slight upward revision of Taiwan's 2024 CPI forecast from 1.8% to 2.0%, though it remains relatively contained.

Hsu warned that Taiwan's strong economic performance is essentially a miracle driven by AI—and more specifically, an "All In" bet on semiconductors—which could pose long-term risks due to unbalanced industrial development.

Regarding the U.S. Federal Reserve's monetary policy, Hsu initially expected one rate hike (25 basis points) by year-end 2024 and another by mid-2025. However, if recent U.S.-Iran peace agreements help control inflation, the timing and number of hikes by mid-2025 will require close monitoring. Moreover, if the Fed's new chair, Kevin Warsh, adopts a less transparent approach, it could weaken the anchoring effect of policy, posing another risk.

The Central Bank of Taiwan will hold its second-quarter board meeting tomorrow. The Cathay-NTU team expects that while economic momentum continues to expand—potentially prompting the central bank to consider rate hikes to prevent overheating—external uncertainties remain high. As such, they anticipate a hold on interest rates, with clearer signals likely emerging in September when the external economic landscape becomes more transparent.

On the possibility of Taiwan raising rates in 2024, Cathay Financial's Assistant Vice President Chen Chin-Chi analyzed that two factors are key: inflation expectations and the K-shaped trajectory of Taiwan's economy, where AI and non-AI industries are diverging sharply. Given this, he assessed the likelihood of a rate hike as low.

The term "K-shaped economy" describes an economic divergence resembling the letter "K," where different sectors or income groups experience vastly different outcomes. In this context, AI-related industries are thriving (the upward branch of K), while non-AI industries struggle with rising production costs and fail to ride the application wave (the downward branch of K). (Editor: Chang Liang-Chih) 1150617