Taiwan economy faces uncertainties, slower China growth: Central bank

Taipei, Sept. 21 (CNA) The local economy now faces several major uncertainties including slower growth in China, the largest buyer of goods made in Taiwan, although local gross domestic product (GDP) is forecast to grow more than 3 percent in 2024 and 2025, according to the Central Bank of the Republic of China (Taiwan).

After wrapping up a quarterly policymaking meeting on Thursday, the central bank announced it has raised its forecast for Taiwan's GDP growth in 2024 to 3.82 percent, up from 3.77 percent estimated in June, and anticipates growth will hit 3.08 percent in 2025.

The central bank said the local economy is expected to continue to benefit from emerging technologies such as artificial intelligence applications, high performance computing devices and the launch of new consumer electronic gadgets from international brands, as well as an increase in domestic investments and consumption in the second half of this year.

In 2025, growing momentum in domestic demand is expected to keep pushing the economy ahead, the central bank said.

However, in a report released after the quarterly policymaking meeting, the central bank said it is concerned slower GDP growth in China, reflecting weakening domestic demand, could have spillover effects that hurt economies like Taiwan, which sell a large volume of goods to the mainland market.

In the second quarter, China's GDP, the second largest in the world, grew 4.7 percent from a year earlier, below an earlier market estimate of 5.1 percent, marking the slowest increase since the first quarter of 2023. Second quarter GDP growth also moderated from 5.3 percent in the first quarter.

The central bank noted that in order to assuage the impact of a supply glut amid weaker domestic demand, China could intensify efforts to sell its goods in global markets, which would potentially exacerbate competition with other export-oriented economies like Taiwan.

It also said escalating trade tensions between the U.S. and China and between Europe and China could speed up the pace of restructuring in global supply chains and lead to a fragmented global economy.

Under such unfavorable circumstances, Taiwanese firms are expected to rush to intensify their efforts to diversify investments but reduce their investment in Taiwan at the same time, which could affect the country's exports and private investments, the central bank said.

In addition, the central bank said the major central banks around the world are divided in their monetary policy with the U.S. Federal Reserve and the European Central Bank kicking off a rate cut cycle but Japan moving in the opposite direction by raising rates to mitigate pressure from imported inflation.

It said the divergence in monetary policies is expected to influence fund flows, sending ripples through the global stock and foreign exchange markets that eventually affect the global economy.

The central bank said global trade and financial markets could be haunted by the presidential election in the U.S. scheduled for November, while lingering conflicts in the Middle East and a growing crisis in the Red Sea could hinder global supplies in energy and commodities, which is likely to boost inflationary pressure.

The central bank also warned extreme weather, measures to achieve net zero emissions and aging societies will make inflation worse and produce more uncertainties in the global economy.