Cathay Financial ups 2026 GDP growth forecast for Taiwan to 5.8%

Taipei, March 17 (CNA) Cathay Financial Holding Co. has raised its forecast for Taiwan's gross domestic product growth in 2026 to 5.8 percent, citing the AI boom, but it cautioned that the economy could be hit by inflationary pressures due to higher crude oil prices.

In its latest economic climate report released Monday, Cathay Financial, the largest financial holding firm in Taiwan in terms of total assets, said Taiwan's GDP is likely to grow 5.8 percent in 2026, up from its previous estimate of 3 percent made in December.

The firm's projection was lower than the 7.71 percent forecast made by the Directorate General of Budget, Accounting and Statistics (DGBAS) in February, which was revised up from an estimate of 3.54 percent in November.

Speaking with reporters, National Central University economist Hsu Chih-chiang (徐之強), who led the Cathay Financial research team that compiled the report, said the DGBAS forecast largely reflected the strong performance by Taiwan's exports reported earlier this year.

The world's political and economic landscape has been changing rapidly, creating global economic uncertainty, Hsu said, warning that a key concern is how rising international crude oil prices amid the war in the Middle East will fuel inflation.

Hsu said crude oil prices have soared more than 40 percent since the United States and Israel attacked Iran in late February, and if that spike is sustained for more than three months, it will cut Taiwan's GDP growth by 1.2 percentage points based on Cathay Financial's forecasting model.

Other factors that could hurt GDP growth, Hsu said, were U.S. investigations of its trading partners, including Taiwan, under Section 301 of the Trade Act of 1974 and reduced expectations of rate cuts by the U.S. Federal Reserve amid inflation concerns.

Cathay Financial said Taiwan's economy was expected to grow at a stable pace in the first quarter, but could face uncertainties in the second quarter due to rising energy prices and volatility in global financial markets.

The economic climate in the second quarter had a more than 60 percent chance of turning to "cloudy skies," referring to weakening conditions, from "sunny skies" in the first quarter, it said.

Though Hsu expected Taiwan's government to adopt price stabilization measures to mitigate the impact of higher oil prices, he said his team still raised its inflation forecast for Taiwan from 1.6 percent to 1.8 percent.

Cathay Financial anticipated that Taiwan's central bank will leave its key interest rates unchanged at its quarterly policymaking meeting scheduled for Thursday due to the 1.23 percent increase in the consumer price index in the first two months of the year.