Bloomberg
South Korea and Taiwan's artificial intelligence (AI)-fueled chip booms are expected to swell both economies' current-account surpluses to record levels and put pressure on their central banks to raise interest rates later this year. This is according to economists at Goldman Sachs Group Inc, led by Andrew Tilton, who now anticipate two 25-basis point interest rate hikes in South Korea in the third and fourth quarters, and two 12.5-basis point increases in Taiwan in the second and fourth quarters. The analysts believe the surge in tech exports will push what they call the "AI-driven super surplus" in current accounts above 10 percent of GDP in South Korea this year and to over 20 percent of GDP in Taiwan. This trend is likely to persist despite both economies' reliance on energy imports from the Middle East, according to Goldman.
A Taiwanese flag, left, and a South Korean flag are pictured in an undated photograph.
Photo: Freepik
"This AI boom is the strongest tech cycle on record for Korea and Taiwan," the economists said in a note yesterday. "Even under our various adverse oil-price scenarios, the impact on chip-energy balances should be immaterial since the scale and growth of chip exports completely dominate the energy price path." South Korea's AI-related exports could triple to almost 30 percent of economic output this year – from less than 10 percent over the past decade – while Taiwan's could rise further to over 30 percent of GDP, they wrote. Meanwhile, non-tech exports are likely to remain subdued amid regional oversupply and the energy shock confronting the region.
So far, South Korea's surplus has been mainly recycled into overseas equities, and Taiwan's into foreign exchange deposits, according to Goldman, but appreciation pressure may be building. "The K-shaped cycle argues for targeted, prudent fiscal policy," the economists said. "With the outsized AI-driven export boom, both currencies should face appreciation." Taiwan's economy grew at its fastest pace since 1987 in the first quarter, and South Korean exports have been strong, with shipments of semiconductors as the primary driver. The boom is creating challenges for policymakers as the uneven nature of growth sees few workers advance while the rest struggle. Nevertheless, optimistic forecasts suggest there is significant potential for both economies. A recent note from Morgan Stanley's chief Asia economist, Chetan Ahya, stated that Asia is entering an industrial super-cycle that is partly driven by the AI boom and AI-related infrastructure. The Goldman economists expect South Korea's GDP growth to rebound to 2.5 percent this year, from 1 percent last year, and Taiwan's to accelerate to almost 10 percent this year, from 8.7 percent last year. The tech boom may increase growth volatility, the Goldman economists said.