Taiwan revised down its estimate for economic growth in 2024 after three straight upgrades, projecting a smaller increase in exports but remaining optimistic about overseas demand for artificial intelligence-related products.

Gross domestic product is set to expand 3.9% this year, down from a previous estimate of 3.94% by the statistics bureau in May, according to a statement on Friday. In the first projection of next year’s growth, it said GDP will grow 3.26%.

The government also downgraded its forecast for export growth this year to 8.7%, from just over 10% previously. Consumer prices could rise 2.17% for the year, compared with a previous projection of 2.07%.

“Exports are not bad, but just weaker than expected,” said Tsai Yu-tai, head of statistics for the Directorate-General of Budget, Accounting and Statistics. “While there is uncertainty about how strong the demand is for AI products, we generally remain optimistic.”

The government wants to achieve annual growth of 2.8%-3.6% for the next four years, aiming to lift the tech titan’s overall output to around $1 trillion over that period. Taiwan’s roughly $800 billion economy weathered the pandemic well and has continued to outperform most rivals, expanding slightly more than 5% on year in the second quarter thanks to exports of high-tech products which underpin the development of AI.

Exports, Consumer

While exports were the main driver of growth in the second quarter, consumer spending has also been robust thanks to a stable jobs market and salary increases, as well as wealth generated by stock gains.

Investment for the second quarter grew nearly 15% on year as demand increased and companies were more willing to commit capital. The statistics bureau also revised up by 2.37 percentage points its expectation for private investment in 2024, citing announcements made by foreign companies among other factors.

The self-ruled island’s tech powerhouse, Taiwan Semiconductor Manufacturing Co., posted record revenue for July this year and has lifted its projections for 2024 sales, confirming the robust global demand for AI technologies.  

Still, Taiwan’s reliance on exports is a source of uncertainty for its economic outlook. 

“The downside risk is slowing demand for AI, which could weigh on exports,” Michelle Lam, Greater China Economist at Societe Generale SA, said before the figures were released on Friday. “Another risk is an abrupt correction in equity markets, which could also hurt consumption sentiment.” 

Taiwan’s central bank will likely leave interest rates unchanged for the rest of the year, according to Woei Chen Ho, economist at United Overseas Bank Ltd.

“Inflation remains sticky, and the robust growth also reduces the urgency to cut given that Taiwan’s interest rate is still comparatively lower versus the region,” she said.