Exports Remain Strong as Domestic Pressures Build
Taiwan’s economy sustained its rapid expansion into the fourth quarter, as global demand for AI infrastructure continued to drive record export and production figures. Yet despite strong industrial performance and upgraded growth forecasts, household spending, property activity, and credit conditions remain subdued, highlighting the widening gap between external momentum and domestic resilience.
At its September 18 policy meeting, the Central Bank kept the benchmark interest rate unchanged at 2.00% while lifting its 2025 GDP growth forecast to 4.55% from 3.05% in June, citing robust semiconductor exports and contained inflation. The International Monetary Fund in its October World Economic Outlook lifted Taiwan’s 2025 growth projection to 3.70% from 2.90% in April, reflecting stronger global momentum. DBS Bank went further, projecting 5.60% expansion, citing AI-related investments and gains in industrial output as the main economic drivers.
According to the Ministry of Finance, exports in September rose 33.8% year-over-year (YoY) to US$54.25 billion, while imports rose 25.1% to US$41.86 billion, resulting in a trade surplus of US$12.4 billion.
Industrial output mirrored the expansion, with production up 15.48% YoY in September and manufacturing output rising 16.90%. Output of electronic components and semiconductors advanced 24.39% and 26.53% YoY, respectively. Officials noted that sustained high-tech demand kept factories operating at elevated capacity, though they cautioned that rapid capacity expansion could risk short-term supply imbalances if global demand moderates.
At the same time, inflation remained subdued. The Directorate General of Budget, Accounting and Statistics (DGBAS) reported that the Consumer Price Index (CPI) rose 1.25% YoY in September, with core inflation at 1.46%. The Central Bank’s full-year forecast for 2025 consumer price growth stands at 1.75%, below its 2% alert threshold. Service prices for catering and rents increased 3.44% and 2.14%, respectively. The contained inflation gives policymakers space to maintain a measured policy stance while monitoring capital inflows and exchange-rate pressures.
The number of unemployed in September was 407,000, down 2.02% from a month earlier, DGBAS reported. Employment growth remains concentrated in high-tech manufacturing and export-oriented industries, while service sectors continue to struggle with sluggish demand. Economists warn that if domestic spending fails to recover, broader employment effects could emerge in the coming months.
Retail trade in September contracted 2.20% YoY to NT$393.8 billion, while food and beverage sales declined 0.90% to NT$83.5 billion, according to the Ministry of Economic Affairs (MOEA). Economists attribute the persistent decline to currency appreciation, tariff-related uncertainty, and muted confidence in the housing market.
The housing sector remains another point of concern. Property transactions across Taiwan’s six major municipalities dropped 32.1% YoY in August, the most recent month with available data, as tighter lending restrictions and rising service costs continued to dampen sentiment. Household debt has risen to 95.6% of nominal GDP — among the highest in Asia — leaving limited room for a credit-driven consumption rebound.
Financial markets remained broadly stable through October. The TAIEX index hovered above 24,000 points, close to its historical peak, supported by strong corporate earnings and investor optimism over Taiwan’s leading role in the AI supply chain. The New Taiwan dollar appreciated modestly against the U.S. dollar on strong export receipts and investment inflows. The Central Bank reiterated its readiness to intervene to prevent excessive volatility, emphasizing that over-appreciation could erode exporters’ competitiveness.
Government bond yields showed little movement, with 10-year notes trading near 1.2%, signaling continued confidence that inflation pressures are contained. Foreign direct investment inflows reached US$2.3 billion in the second quarter, up from US$1.5 billion a year earlier, with more than 60% of new projects targeting AI and high-tech infrastructure. The MOEA said inflows were likely to accelerate in the second half as international companies expand capacity in Taiwan to meet surging AI demand.
Tariffs and Global Policy Pose Threats
Trade policy remains the principal source of external risk. The United States has continued its Section 232 investigation into semiconductors and smartphones, a move that could subject Taiwanese manufacturers to new duties.
According to Reuters, Taiwanese officials have reportedly rejected a U.S. proposal to relocate half of the island’s U.S.-bound chip production to American facilities, arguing that such a move would undermine the integrity of its semiconductor ecosystem and supply-chain efficiency. Taipei has instead sought to expand imports of U.S. agricultural goods and maintain ongoing dialogue to ease tensions. The MOEA has also rolled out an NT$46 billion investment-relief program to help exporters hedge against potential tariff impacts and supply-chain disruptions.
Global monetary trends have also diverged further. The U.S. Federal Reserve began a rate-cutting cycle in October as a precaution against slowing growth, while the Bank of England maintained its restrictive stance and the Bank of Japan signaled readiness to raise rates to counter yen depreciation. Analysts say these moves highlight the importance of Taiwan’s measured policy approach — neither tightening aggressively nor relaxing prematurely — to sustain stability amid volatile capital flows.
Energy and materials supply risks have added to the complexity of the trade landscape. The Guardian reported in October that Taiwan has become the world’s largest importer of Russian naphtha in the first half of 2025, buying 1.9 million metric tons worth about US$1.3 billion. Naphtha is an essential feedstock for the petrochemical industry and semiconductor manufacturing. Officials explained that the surge in imports was driven by price competitiveness rather than policy alignment. However, analysts warn that reliance on Russian naphtha could pose energy-security and reputational risks as Western sanctions tighten.
Meanwhile, China’s recent expansion of export controls on specific rare-earth elements has sparked concern about potential supply constraints in the electronics and EV industries. Taiwan’s MOEA stated in mid-October that the restricted materials do not directly affect wafer fabrication and that Taiwan’s core semiconductor capacity remains secure, but the episode underscored how geopolitical friction in critical materials could impact production costs and supply-chain stability over time.
Still, private-sector confidence remains robust. In late October, Hon Hai Precision Industry Co. (Foxconn) approved up to NT$42 billion (about US$1.37 billion) to establish an AI-compute cluster and supercomputing center in Taiwan. Additionally, at the 2025 Taiwan Business Alliance Conference, the MOEA secured roughly NT$160 billion in Letters of Intent from 25 foreign companies spanning advanced materials, power systems, and smart consumer products.
Meanwhile, global investment firm Hamilton Lane announced its expansion into Taiwan, launching private-markets evergreen funds as part of the island’s ambition to position itself as a regional asset-management hub.
Taken together, these developments indicate that high-tech capital expenditure, foreign investment inflows, and capital-market development are fueling Taiwan’s growth momentum — though the broader test lies in whether such investment ultimately translates into increased incomes, rising services demand, and growth across interior regions.
With GDP growth projected above 4% and inflation contained, Taiwan is poised to enter 2026 on solid footing. The challenge now is to channel export-driven gains into stronger domestic demand and income growth. Without a recovery in consumption and property investment, the economy risks prolonging the imbalance between external momentum and household confidence.
