KONTAN.CO.ID - TAIPEI. Taiwan slightly raised its 2019 economic growth forecast on Friday to 2.64% from 2.46%, as some manufacturers move factories back to the island to avoid higher tariffs as the U.S.-China trade war drags on.

The updated forecasts were released along with revised readings on gross domestic product (GDP) growth for July-September.

Third-quarter GDP grew 2.99% from the same period a year earlier, up from the preliminary 2.91%, the Directorate General of Budget, Accounting and Statistics said.

The government also nudged up its outlook for the economy's growth next year, to 2.72% from 2.58% projected in August.

The agency said the "positive effects" of factory relocations to Taiwan from China have helped lift economic growth.

The improving global economic outlook as well as recovering demand for electronics due to new technologies, including artificial intelligence and fifth-generation telecommunications (5G), will boost Taiwan's exports in 2020, it added.

"Stronger-than-expected investment is an important factor, including increased investments from semiconductor vendors and manufacturers who have moved production back to Taiwan," said statistics department director Tsai Yu-tai.

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Domestic investment is expected to grow 7.6% this year, the highest since 2013, the agency said.

Despite its heavy reliance on exports, Taiwan's economy has bucked a regional growth slowdown this year. It was named in a U.N. study as the largest beneficiary of "trade diversion" amid the U.S.-China trade war, as some companies moved production from the mainland to Taiwan to reduce business disruption. Taiwan's manufacturers are a key part of the global supply chain for tech giants such as Apple and Huawei and its exports have been hit by both trade war disruptions and sluggish global demand for hi-tech gadgets.

"The U.S.-China trade war has surprisingly had the effect of orders and production being shifted (to Taiwan)," said Taishin Securities Investment Advisory economist Kevin Wang, adding that rising demand for semiconductors has also boosted semiconductor manufacturers, who are vital to the island's economy.

Investment from manufacturers who moved some operations to Taiwan from China have reached more than T$690 billion ($22.63 billion) in 2019, the government said this month.

Some analysts, however, remain cautious about Taiwan's growth outlook, citing lingering concerns over how much longer the trade war will last and tepid demand for electronics.

The United States and China are close to agreement on the first phase of a trade deal, U.S. President Donald Trump said this week, but several big sticking points remain.

"Investors have adopted a wait-and-see approach. This is probably due to the trade war, as Taiwan is so intertwined with the manufacturing of Apple products and will likely be affected by the ongoing dispute," ING economist Iris Pang said in a note earlier this month.

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"Unless there is certainty about fresh demand for Taiwan's electronic products, investments may just sit in Taiwan for the time being."

Editor: Wahyu T.Rahmawati