Cathay expects Taiwan's GDP to rise 2.8% in 2025, no immediate rate change

Taipei, Dec. 14 (CNA) Cathay Financial Holding Co., the largest financial holding firm in Taiwan, has forecast the country's gross domestic product (GDP) will grow 2.8 percent in 2025 while anticipating the Central Bank of the Republic of China (Taiwan) will leave its key interest rates unchanged for now.

Cathay Financial's 2.8 percent GDP growth forecast was unchanged from its earlier estimate made in September and showed more caution about the local economy than the government.

In late November, the Directorate General of Budget, Accounting and Statistics (DGBAS) forecast Taiwan's economy would grow 3.29 percent, an upgrade from its previous estimate of 3.26 percent in August.

In 2024, Taiwan's GDP could rise 4.1 percent, an upgrade from a previous forecast of 3.7 percent made in September, Cathay Financial said. The DGBAS has forecast the country's GDP will grow 4.27 percent this year.

Cathay Financial, which released the latest GDP forecast earlier this week, said a growing popularity in artificial intelligence applications has boosted global demand for related semiconductors and electronics components made in Taiwan, pushing up the country's exports and investments in 2025.

However, global trade tensions could escalate after U.S. President-elect Donald Trump returns to the White House in January, which could dampen investors' faith, affect private consumption, and send ripples through the stock market in Taiwan, Cathay Financial said.

As a result, Cathay Financial said it had lowered the forecast range of Taiwan's GDP growth to 1.6-3.6 percent, slightly down from the previous 1.8-3.7 percent, for 2025, while leaving the average 2.8 percent growth estimate unchanged.

The Cathay Financial research team said growing AI applications will benefit Taiwan's electronics industry over the next few years.

Cathay Financial said it expected the local central bank to maintain its monetary policy unchanged in a quarterly policymaking meeting scheduled for Dec. 19, although the major central banks in the world, including the U.S. Federal Reserve, have kicked off a rate cut cycle.

Cathay Financial said Taiwan's core consumer price index, which excludes fruit, vegetables and energy, has fallen below 2 percent, an alert set by the central bank since April, but service costs such as rents, medical care and dining-out expenses stayed relatively high.

Due to the high service expenses, Cathay Financial said the central bank can maintain its monetary policy unchanged in 2025.

In June, the central bank decided to leave its interest rates unchanged, marking the second consecutive quarter in which the central bank maintained its key interest rates.

After the decision, the discount rate remained at 2 percent, which is still the highest in 15 years -- with the rate on accommodations with collateral at 2.375 percent and the rate on accommodations without collateral at 4.250 percent.

Some market analysts have cautioned home buyers should stay alert on whether the local central bank will impose more selective credit controls in the home market next week to rein in high-flying home prices.