(July 31): Taiwan’s economy grew more than expected in the second quarter of 2024, riding global demand for artificial intelligence-related (AI) technologies.

Gross domestic product (GDP) grew 5.09% on-year, according to a statement from the statistics bureau in Taipei on Wednesday. That was stronger than the 4.8% increase economists forecast in a Bloomberg survey. Capital formation rose 15.3% year-on-year as companies increased investment in equipment, construction and intellectual property.

GDP was expected to increase by 3.91% this year, the bureau said, compared to an earlier forecast of 3.94%. While Taiwan’s economy expanded at the fastest pace in almost three years in the first quarter, economists and the government have warned it was likely to slow over the rest of 2024, due in part to a higher base of comparison with last year.

Taiwan’s economy has roared on global demand for the semiconductors and servers that support AI technologies. Earlier this month, Taiwan Semiconductor Manufacturing Co lifted projections for 2024 revenue growth after quarterly results beat estimates, reflecting confidence in the longevity of the AI spending boom.

“Overall, the report confirms the economy is still pretty buoyant and inflation remains a concern as highlighted by some members in recent central bank minutes,” said Michelle Lam, greater China economist at Societe Generale SA. “We expect further tightening in September, likely with another RRR [reserve requirement rate] hike.”

Taiwan’s central bank board unanimously voted to keep borrowing costs at 2% at the June policy meeting but one member initially called for a rate hike and another said they would agree with an increase in borrowing costs, according to minutes of the meeting released last week. Both warned that rising property rents are increasingly fuelling consumer price inflation.

The central bank last month raised its reserve requirement rate and tightened curbs on buying property, with the aim of clamping down on liquidity and cooling the housing market. Recent official data show that the housing price index grew 9.3% in the first quarter compared to the same period a year earlier, the fastest pace since the third quarter of 2022.

The AI fervor has sent Taiwan’s benchmark Taiex stock gauge to a record high this year, though along with the Taiwan dollar it has retreated recently following lacklustre earnings from US big tech.

Taiwan’s top financial regulator, Peng Jin-lung, said in a recent interview that recent sales of stocks by overseas investors were a “short-term phenomenon” that don’t represent a bearish view, with foreign holdings on an upward trend in recent years.

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