Digitisation to drive Taiwan’s growth

Taiwan's role in high-precision chips provides it with a structural advantage during the ongoing period of digital transformation around the world. The economy will remain an outperformer among its Asian peers.

Due to this advantage, ANZ Research has upgraded its gross domestic product (GDP) growth forecast for Taiwan during 2025 to 6.9 per cent from 6.2 per cent, and for 2026 to 3.9 per cent from 3.50 per cent.

Taiwan's significant reliance on electronic supply chains presents both opportunities and risks. Any setback to the current artificial intelligence (AI) boom could adversely affect Taiwan's trade and capital inflows.

ANZ Research’s base scenario anticipates stable economic growth and moderate inflation for Taiwan in 2026, supporting its central bank's decision to keep interest rates unchanged.

Economy of exports

Taiwan’s real GDP rose 7.64 per cent year on year in the third quarter of calendar 2025, driven by a 36 per cent export jump in chips, as well as information and communications technology (ICT) products. Strong global demand for AI and cloud tech was the key driver.

According to ANZ Research estimates, every 1 per cent increase in exports is associated with a 0.2 per cent increase in Taiwan’s GDP. September’s export orders grew 30.5 per cent year on year, indicating ongoing strength in the fourth quarter of 2025.

Taiwan’s export momentum has been very strong, with electronics shipments reaching a record $US21 billion in September – three times the monthly average from 10 years ago.

Taiwan’s expertise in advanced chip production, especially 3 nanometre (nm) and 5 nm nodes, gives it an edge as global digitisation accelerates.  The capital expenditures of chip makers and the industry clusters at large have played a significant role in supporting Taiwan’s investment growth.

Besides semiconductors, exports of ICT devices also reached a record high of $US66 billion in the third quarter, marking a robust increase of 84 per cent, year on year. This coincides with a rise of in export share to the United States — 31 per cent in the third quarter, compared to 15 per cent in 2021.

The increased economic integration between Taiwan and the US reflects the shift of manufacturing operations from mainland China and Hong Kong, whose combined export share is expected to fall to about one quarter by the end of 2025.

Households remain cautious. Retail investors drive around half of turnover in Taiwan, and that consumption was formally linked to stock market performance. Despite the robust performance of Taiwan’s equity, household spending has not moved in parallel in the past two years.

Correspondingly, private consumption represents only 45 per cent of Taiwan’s GDP. Nonetheless, it has only modestly contributed to Taiwan's GDP growth (0.2 percentage points in the third quarter), with external demand (6.1 percentage points) and investment (3.6 percentage points) remaining the main drivers.

A risk

Taiwan provides chips to global semiconductor companies based in the US and is expanding its data-centre capacity. Semiconductors and ICT products now make up two-thirds of Taiwan’s total exports.

Taiwan ranks second worldwide on the Economic Complexity Index, just after Japan, and its products are hard to replace. On the downside, this feature makes Taiwan’s economy very sensitive to global tech shocks. Should there be a correction of the current AI boom, the economy will be hit.

Reliance on the US market is a risk. In April 2025, US President Donald Trump proposed a 32 per cent reciprocal tariff on economies with large trade surpluses, including Taiwan. This is consistent with Trump’s formula of the trade deficit divided by twice the total import value.

The government expects bilateral negotiations will continue in the wake of the APEC Summit. After a 90-day pause, tariffs could return to July’s modified rate of 20 per cent if negotiations prove unsuccessful. US tariffs remain an unsettled issue.

In the past decade, manufacturers in Taiwan relocated a portion of their production capacity to south-east Asia, Mexico and other regions with lower costs, partially due to geopolitical factors.

Recent US tariffs on goods produced in Taiwan and mainland China may encourage further diversification of these manufacturing locations. However, the US is also expected to address local-content arrangements, which could affect Taiwan's ability to contribute domestic value within regional supply chains.

Containable

Taiwan's inflation continues to slow, with its headline consumer price index dropping to 1.25 per cent year on year in September 2025, the lowest since March 2021 and below the central bank’s 2 per cent target.

Price easing is broad, except for a slight increase in healthcare costs. Core inflation remains stable at 1.46 per cent, consistent with forecasts for 2025. The ongoing macro-prudential measures by the central bank appear to have contained property prices in major cities.

In addition to the impact of weather-related risks on food prices, fluctuations in the global crude oil market have been a major driver of inflation dynamics, and could continue to rise through 2026.

Taiwan Power increased electricity rates by 0.71 per cent in October 2025, far below its proposed 6.45 per cent hike. Industrial users were exempt because their rates had already been repeatedly raised. The approved increase reflects the government's cautious stance on inflation and public burden, which has cost the electricity supplier $T410 billion.

The Ministry of Economic Affairs has urged lawmakers to approve financial subsidies to cover the loss. This use of fiscal policy is a tool to mitigate cost-push inflation.

Starting January 2026, Taiwan will raise the minimum wage by 3.18 per cent to $T29,500 per month, benefiting 2.5 million workers (21 per cent of the workforce). Despite this increase, inflation is projected to moderate to 1.64 per cent in 2026, so real wages are expected to grow.

Previous wage hikes did not cause cost-push inflation, but with potential global energy price volatility, there is a slight upside risk to the 1.6 per cent inflation forecast for 2026.

No need

Taiwan’s central bank has maintained interest rates since early 2025. At the September meeting, one member suggested the need to monitor inflation expectations. The bank adjusted its 2025 inflation forecast from 1.81 per cent to 1.75 per cent and core CPI from 1.69 per cent to 1.67 per cent.

Current assessments indicate that, with inflation expected to remain below 2 per cent in the second half of the financial year, there is no immediate need for a rate hike or cut.

Taiwan's central bank will continue monitoring the domestic property market and manage funding and liquidity through macro-prudential tools such as reserve requirements and lending restrictions. Another member at the September meeting suggested open market operation is a more flexible tool. In conclusion, the policy tone indicates the bank will use interest rates as a tool less frequently going forward.

The Taiwan dollar is projected to remain under appreciation pressure. Taiwan is expected to maintain a current account surplus estimated at 14 per cent of GDP in 2026, with the value rising to $US133.6 billion compared to $US129 billion in 2025.

Equity inflows are anticipated to continue, with investors likely to sustain their exposure to the semiconductor sector, consistent with recent trends. Risk remains regarding over-valuation in the AI segment. If there is a correction in the technology sector, Taiwan’s capital inflow may also be affected.

Defining moment

Taiwan’s economic performance mirrors global advancement in digital technology. According to IMF projections, Taiwan’s GDP per capita will take over both Japan and South Korea in 2025. It will likely reach $US37,827 – an 11 per cent increase.

This is a defining moment for the tech-driven economy. Although Taiwan ranks 31st in US dollar terms, it is the top 13^th alongside Netherlands in purchasing power parity and the fourth-highest ranking economy in Asia, following Singapore, Macau and United Arab Emirates.

These Asian economies have different industrial structures from gaming, banking and finance to fossil fuel.

Taiwan’s unique position in chip technology supports a positive economic outlook in the long term. However, other Asian competitors are catching up, such as Shenzhen in mainland China, a city that used to have many managerial staff from Taiwan working in mainland China for Taiwanese investors. Manufacturing is close to 35 per cent of Taiwan’s economy in 2024.

Other Asian Tigers that became famous in the 1980s, such as Singapore or South Korea, expanded their service sectors. Even the world’s factory – mainland China – saw its manufacturing share drop to 25 per cent in 2024.

While Taiwanese companies are looking for an alternative production base because of geopolitics and US tariff policy, policymakers face the challenge of diversifying the product mix, destination market and sources of export orders domestically.

Raymond Yeung is Chief Economist, Greater China at ANZ

This is an edited version of the ANZ Research report “Taiwan’s competitive edge and risk”, published November 3, 2025.