By Liang-sa Loh and Yimou Lee
TAIPEI (Reuters) -Taiwan's central bank on Thursday raised this year's growth forecast for the tech powerhouse island but flagged risks for next year centred on the trade policies of the incoming Trump administration in the United States.
Taiwan's economy has benefited from the crucial role homegrown companies like chipmaker TSMC are playing in the AI revolution.
But given its reliance on trade, Taiwan could be vulnerable to across-the-board import tariffs U.S. President-elect Donald Trump has said he will impose. He takes office on Jan. 20.
Taiwan's central bank said in a statement after its quarterly board meeting, where it kept the benchmark discount rate at 2% as expected, that uncertainty about U.S. trade policy had greatly increased and it was advisable to be "cautious" for possible changes in the global trade landscape.
The bank said it expected Taiwan's economy to continue the growth momentum next year, with new technologies including the AI boom continuing to boost the island's exports.
But it said its 2025 GDP outlook has not yet factored in the possible impact of changes in U.S. trade policy.
"That is too big an uncertainty," governor Yang Chin-long told reporters. "The trade policy of the new U.S. government is an important variable for our economic growth next year."
The central bank raised its 2024 estimate for economic growth to 4.25% from a forecast of 3.82% in September, and predicted growth of 3.13% in 2025 compared with its prior call of 3.08%.
Taiwan's economy grew at its slowest pace in 14 years in 2023.
The central bank also nudged up its consumer price index forecast for this year to 2.18% from a previous prediction of 2.16%, and it forecast that it would fall to 1.89% next year.
Taiwan's central bank has chosen to chart its own path and not follow the lead of the U.S. Federal Reserve, which on Wednesday cut its benchmark interest rate by a quarter of a percentage point.