《TAIPEI TIMES》TIER forecasts GDP to grow 12.34% this year

While companies may re-evaluate data center plans, many orders have already been secured, which should sustain growth, the Taiwan Institute of Economics said.

Taiwan's economy is expected to grow 12.34% this year and 6.45% next year, as continued global investment in artificial intelligence (AI) continues to drive exports, corporate investment and household consumption, the Taiwan Institute of Economic Research (TIER, Taiwan Economic Research Institute) said yesterday.

The Taipei-based think tank raised its forecast for this year and issued estimates for next year, citing larger-than-expected investment in AI by U.S. tech giants, despite growing concerns about the sustainability of the boom and heightened volatility in global financial markets.

The trend in AI is unlikely to be reversed, although the industry is shifting from an investment arms race to more cautious expansion, Zhang Jianyi, president of the Taiwan Academy of Economics, told a forum in Taipei.

"Taking the brakes occasionally doesn't mean the car will stop," Zhang said, adding that modest investment in AI doesn't mean the boom is about to end.

He described last week's market sell-off as a short-term correction that could put industry growth on a more sustainable footing.

The results of last week's U.S. midterm elections may prompt tech companies to reassess their data center expansion plans and improve coordination with local communities, ultimately benefiting the industry's long-term development, Zhang said.

However, AI demand is expected to remain strong in the short term as many orders have been secured and many data center projects have been licensed or are already under construction, he said.

Those commitments should sustain growth into the first half of next year, Zhang said.

The outlook for the second half of the year will depend on whether market concerns ease, and AI investment may continue to grow, but at a slower pace than in the past two years, he said.

Wider adoption of AI will maintain demand for Taiwan's semiconductor, advanced packaging and server supply chains, supporting exports and private investment, the Taiwan Academy of Economics said.

Stronger corporate earnings should also bolster household consumption by supporting income growth, it said.

Private investment and consumption have become additional growth drivers alongside exports, making Taiwan's economy more resilient despite conflicts in the Middle East, said Sun Ming-te, director of the Taiwan Economic Forecasting Center.

Consumer prices are expected to rise 2.05% this year and 1.94% next year, and international oil and raw material prices are expected to be stable next year, the Taiwan Economic Academy said.

The duration of the conflict in the Middle East and the intensity of AI investment will be the two main factors shaping Taiwan's economic prospects, Sun said.

Continued data center expansion and a return to normal shipping in the Strait of Hormuz would support a more optimistic scenario, while a prolonged regional conflict could pose challenges, he said.

Separately, the extramarital affair controversy to which Nvidia CEO Jen-Hsun Huang admitted is unlikely to derail the broader AI industry or have a significant impact on Taiwan's AI supply chain, even if it damages his reputation, Chang said.

What investors should watch closely is whether competition from Advanced Micro Devices Inc and other rivals could erode Nvidia's gross margins, he said.