DBS forecasts 3.5% growth for Taiwan's economy in 2024

Taipei, Jan. 27 (CNA) Singapore-based DBS Bank has forecast that Taiwan's gross domestic product (GDP) will grow 3.5 percent in 2024 because of a jump in exports and investment, beating about 1 percent growth seen in 2023.

"Positive momentum is expected in exports and private investment, particularly in the semiconductor sector" in 2024, DBS senior economist Ma Tieying (馬鐵英) said in a statement released Jan. 25.

In the statement, Ma said the expected increase in economic activity will position Taiwan as one of the region's top performing economies, especially as the semiconductor sector rebounds from bloated inventories that suppressed demand in 2023.

With inventories returning to healthier levels and artificial intelligence development on the rise, the global semiconductor sector should begin a cyclical recovery and grow 10-20 percent in 2024, pushing Taiwan's exports and investment significantly higher, Ma said.

The DBS forecast echoed a forecast made last week by Taiwan Semiconductor Manufacturing Co. (TSMC), which expected its revenue to grow 21-26 percent in 2024, higher than the expected 20 percent increase in the global pure play wafer foundry industry.

TSMC's forecast for sales growth also beat an expected 10 percent year-on-year increase in global semiconductor industry revenue, excluding the memory chip segment, in 2024, TSMC said.

According to DBS, Taiwan's economic growth is expected to hit 4-5 percent in the first half of 2024 before moderating to 2.5 percent in the second half.

Private consumption growth is expected to continue in 2024, though the pace of growth will moderate from 2023, when spending was significantly fueled by pent-up demand from the COVID-19 pandemic, DBS said in the statement.

Government spending and public investment should also grow in 2024, DBS said, citing the central government's 2024 budget, which called for a 7.2 percent increase in total expenditures, the statement said.

Inflation is expected to ease in 2024, according to DBS, which forecast a 1.7 percent rise in Taiwan's consumer price index, compared with an increase of 2.5 percent in 2023, DBS said.

Many economists believe the U.S. Federal Reserve will start cutting its key interest rates in the second half of the year as prices in the U.S. stabilize, but Taiwan's central bank will likely leave its monetary policy unchanged as already low interest rates offer little room for a further cuts, DBS said.

Another potential concern is that China could further suspend or cancel tariff concessions under the Economic Cooperation Framework Agreement (ECFA), given that the pro-independence Democratic Progressive Party (DPP) won Taiwan's presidential election on Jan. 13.

On Dec. 21, 2023, China's Customs Tariff Commission announced it was suspending preferential tariffs on 12 petrochemical products, including propylene and paraxylene, citing trade barriers imposed by Taiwan on similar products.

Ma said, however, that even if China canceled the trade agreement, it would only chop 0.3-0.7 percentage points from Taiwan's GDP growth, and the impact would be limited as the products under the ECFA account for only 3-4 percent of Taiwan's total exports.

In addition, the cancellation of tariff concessions under the ECFA does not mean Taiwan cannot sell its products to China. Rather, Taiwanese exporters will have to sell their goods to China at higher prices.

The ECFA, signed in 2010 when Taiwan was under the Kuomintang administration of then-President Ma Ying-jeou (馬英九), included an "early harvest" list for tariff concessions covering 557 Taiwan exported products to China and 267 Chinese products bound for Taiwan.

Amid geopolitical tensions, Ma said, large enterprises in Taiwan are expected to further diversify their supply chains, leading to the possibility that Taiwan and ASEAN will forge stronger investment ties over the next five to 10 years.