Taiwan’s economy inches upwards but misses target as AI tech demand fails to materialise

Taiwan’s economy grew 2.32 per cent in the third quarter, falling short of a government forecast and reflecting only mild interest in the island’s signature hi-tech gear even as artificial intelligence (AI) gains traction worldwide.

Globally, the AI market is expected to grow 17.3 per cent from this year through 2030 riding a wave of demand for chatbots, blockchain, and healthcare automation applications, market research firm Statista has forecast.

Taiwan already supplies about 60 per cent of the world’s semiconductor chips. Industry leaders and economists have said they expect more orders eventually for graphic processing units, memory chips, storage hardware and other components that aid AI transactions.

But the third quarter’s figures show only a nascent beginning for that possible upcycle.

“We’re seeing the tech sector in general drawing down inventory,” said Tony Phoo, an economist with Standard Chartered Bank in Taipei. “We are watching out for data that will suggest that the global demand for consumer electronics has stabilised.”

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GDP growth in the latest quarter can be partly credited to a drop in imports, which send money out of Taiwan rather than contributing to its economy, Phoo said. Goldman Sachs cited “sustained sharp declines in imports of machinery and transport equipment” in a research note last week.

Weak overseas demand for signature exports including hi-tech components, machinery and petrochemicals further hampered GDP growth from July to September, economists have said.

The International Monetary Fund expects global GDP growth to slow from 3.5 per cent last year to 3 per cent in 2023 and 2.9 per cent next year. It has blamed this projected downturn on rising central bank interest rates in multiple countries, employed to fight inflation.

“The strong reliance on global demand and the tech cycle have recently been a headwind for Taiwan,” said Louis Kuijs, Asia-Pacific chief economist with S&P Global Ratings. “After having been an outperformer during Covid, we expect Taiwan to be the slowest growing Asia-Pacific economy this year.”

Taiwan climbed out of recession in the April-through-June quarter with 1.36 per cent GDP growth.

Many analysts still expect Taiwan’s doldrums to turn to dynamite in 2024. “The tech downcycle that inflicted much damage on Taiwanese manufacturing should be turning,” Moody’s Analytics said in its Asia-Pacific outlook published on Friday.

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Taiwan’s semiconductor industry output is expected to reach US$146.1 billion next year, up 14.1 per cent over 2023, thanks to demand spikes for AI and high-performance computing. The prediction came from the government’s Industrial Technology Research Institute, as quoted on Monday by the Taipei-based Central News Agency.

Taiwan’s budget office anticipates 3.32 per cent economic growth next year.

“Although global economic growth has been soft recently, the strength of recovery of end-user demand has been stable and industrial chains continue to adjust inventories,” Taiwan’s Ministry of Economic Affairs said in a social media post on Friday.