Foreign Bank: Taiwan's 'Golden State' May Be Broken, CPI Estimated to Approach 2% for the Whole Year

Taipei, April 13 (CNA) Middle East conflicts have pushed up international oil prices, raising market concerns about inflation. DBS Bank today warned that Taiwan's original 'high growth, low inflation' golden state may be broken, and revised its full-year Consumer Price Index (CPI) forecast for Taiwan from 1.5% to 1.9%, while maintaining its GDP growth forecast at 7%.

DBS Bank (Taiwan) held its Q2 2026 Economic and Investment Outlook press conference today to share its economic and investment outlook.

DBS Group Senior Economist Ma Tieying pointed out that the conflict between the United States, Israel, and Iran has disrupted global energy markets and supply chains. It will take at least several months for oil prices to return to normal, depending on factors such as the passage through the Strait of Hormuz and the full recovery of damaged energy infrastructure. Therefore, the energy price shock is expected to continue into Q2.

Ma Tieying stated that the Middle East conflict may push up global inflation, causing the global economy to face challenges similar to 'stagflation'. Although Taiwan will not face this situation, its original 'high growth, low inflation' golden state may be broken. According to DBS Bank's forecast, assuming an average Brent crude oil price of US$80 per barrel for the full year, inflation is expected to rise to about 2% from May and remain until December, mainly driven by energy and food prices.

DBS Bank noted that leading indicators already show rising inflation and weakening export momentum in Q2. 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 finances, stock market outlook, and price levels.

Regarding economic growth forecasts, Ma Tieying explained that benefiting from the rapid development of 'agent 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.

Regarding tariff-related challenges, Ma Tieying said that although Taiwan still faces the risk of Section 301 tariffs and the second phase of Section 232 semiconductor tariffs, it is generally in a relatively favorable position. Under the premise of continuously fulfilling relevant commitments, such as opening up the domestic market, increasing imports of US goods, and expanding investment in the US, the possibility of Taiwan receiving more favorable tariff treatment under Sections 301 and 232 remains high.

DBS Bank explained that Taiwan's GDP growth forecast for this year remains at 7%, mainly reflecting better-than-expected performance in Q1 and a gradual slowdown after Q2. It is estimated that the year-on-year growth rate in Q1 will be about 10%, slowing to 7% to 8% in Q2 to Q3, and further decreasing to 2% to 3% in Q4. This is mainly due to cooling global demand in non-AI industries, inflation and supply chain pressures eroding corporate profits and household real income, leading to weakening exports, investment, and private consumption.

Regarding the investment outlook, DBS Bank believes that unless the Iran conflict causes adverse spillover effects, the probability of a US economic recession this year is not high. However, the risks of potential stock market weakness, tariff-driven inflationary pressures, employment uncertainty, and oil price shocks are rising. Against this backdrop, the US Federal Reserve is expected to cut interest rates by one quarter point each in Q3 and Q4 this year.

Chen Yujia, Senior Vice President of Wealth Management Investment Advisory Department at DBS Bank (Taiwan), stated that in Q2, the view of maintaining a diversified investment portfolio remains, with a neutral stance on equity and bond markets, and an optimistic view on alternative investments such as gold, private equity, 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 to rise, with a target price of US$6250 per ounce in H2 2026.

For the stock market, DBS Bank continues to be optimistic about Asian equities excluding Japan, and maintains a neutral view on US equities. In terms of industry allocation, in addition to technology stocks, utilities and energy stocks are still favored, mainly benefiting from AI infrastructure-related demand. 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. (Editor: Pan Yijing) 1150413