Foreign Bank: Taiwan's "Golden State" May Be Broken, Estimates Annual CPI Close to 2%

(Central News Agency reporter Lu Yan-tzu, Taipei, April 13) The Middle East conflict has pushed up international oil prices, raising market concerns about inflation. DBS Bank today warned that Taiwan's original "high growth, low inflation" golden state might be broken, and revised its forecast for Taiwan's Consumer Price Index (CPI) for the year from 1.5% to 1.9%, while maintaining its GDP growth forecast at 7%. DBS Bank (Taiwan) held its 2026 Q2 Economic and Investment Outlook press conference today to share its economic and investment outlook. Dr. Ma Tieying, Senior Economist at DBS Group, pointed out that the conflict between the US, Israel, and Iran has disrupted global energy markets and supply chains. It will take at least several months for oil prices to normalize, depending on factors such as passage through the Strait of Hormuz and the full recovery of damaged energy infrastructure. Therefore, the energy price shock is expected to extend into Q2. Dr. Ma Tieying stated that the Middle East conflict could push up global inflation, leading the global economy to face "stagflation-like" challenges. Although Taiwan will not face this full-blown situation, its "high growth, low inflation" golden state might be broken. According to DBS Bank's forecast, assuming an average annual Brent crude price of $80 per barrel, inflation is expected to rise to about 2% from May and remain there until December, mainly driven by energy and food prices. DBS Bank noted that leading indicators already show rising inflation in Q2 and weakening export momentum. March PMI data showed a significant increase in input costs, reaching levels seen during the Russia-Ukraine war in 2022, while export orders slightly declined. In addition, consumer confidence weakened in March, reflecting public concerns about the overall economic situation, household financial conditions, stock market outlook, and price levels. Regarding economic growth forecasts, Dr. Ma Tieying explained that benefiting from the rapid development of "agentic AI" with autonomous planning and execution capabilities, which continues to drive global demand for advanced computing and cloud infrastructure, the AI-driven export cycle is expected to remain resilient in Q2. As for tariff-related challenges, Dr. Ma Tieying stated that although Taiwan still faces the risk of 301 tariffs and the second phase of 232 semiconductor tariffs, it is generally in a relatively favorable position. By continuing to fulfill relevant commitments, such as opening domestic markets, increasing imports of US goods, and expanding investment in the US, Taiwan still has a high possibility of receiving more preferential tariff treatment under Sections 301 and 232. DBS Bank explained that Taiwan's 2026 GDP growth forecast remains at 7%, mainly reflecting better-than-expected Q1 performance and a gradual slowdown after Q2. It is estimated that the year-on-year growth rate will be about 10% in Q1, slow down to 7% to 8% in Q2 to Q3, and further decrease to 2% to 3% in Q4. This is mainly due to cooling global demand for non-AI industries, and inflation and supply chain pressures eroding corporate profits and real household income, leading to weakening exports, investment, and private consumption. In terms of investment outlook, DBS Bank believes that unless the Iran conflict causes adverse spillover effects, the probability of a US recession this year is not high. However, risks such as potential stock market weakness, tariff-driven inflationary pressures, job uncertainty, and oil price shocks are increasing. Against this backdrop, the US Federal Reserve is expected to cut interest rates by 25 basis points in Q3 and Q4. Chen Yu-chia, Senior Vice President of Wealth Management Investment Advisory Department at DBS Bank (Taiwan), stated that in Q2, the view is to maintain a diversified investment portfolio, taking a neutral stance on equity and bond markets, and favoring alternative investments such as gold, private assets, and hedge funds. Based on market concerns about currency depreciation, rising geopolitical risks, and strong demand from central banks, gold prices are expected to continue rising, with a target price of $6250 per ounce in H2 2026. For the stock market, DBS Bank remains bullish on Asian stocks excluding Japan, and maintains a neutral view on US stocks. In terms of industry allocation, in addition to technology stocks, utilities and energy stocks are still favored, mainly benefiting from demand related to AI infrastructure. In the bond market, investment-grade corporate bonds are still supported by strong balance sheets and structural demand for high-quality income, but AI-driven capital expenditures, narrowing spreads, and fading policy tailwinds will limit their upside.