Exports Accelerate Despite Lagging Domestic Indicators
Taiwan’s economy continued its strong performance into the final quarter of 2025, propelled by exceptionally robust AI-related demand that has lifted exports, factory output, and investment. Yet outside the high-tech sector, domestic demand remains weak, revealing the widening divergence between external strength and household-level economic sentiment.
According to the Directorate General of Budget, Accounting and Statistics (DGBAS), real GDP expanded 8.21% year-over-year (YoY) in the third quarter, maintaining the momentum seen earlier in the year.
The International Monetary Fund in October projected Taiwan’s full-year 2025 growth at 3.70%, citing the island’s critical role in advanced semiconductor and AI hardware supply chains. The Chung-Hua Institution for Economic Research’s (CIER) 2026 outlook points to continued expansion, though at a more moderate pace, as global technology spending normalizes.
Export performance remained exceptionally strong. The Ministry of Finance reported that outbound shipments in October rose 49.7% YoY to US$61.8 billion, the fastest increase in nearly 16 years, driven by high-performance computing, semiconductor components, and server-related products. Imports in the same month increased 14.6% to US$39.2 billion. Export orders, a forward-looking indicator, reached US$69.4 billion in October, up 25.1% YoY, signaling sustained demand through the winter peak.
The industrial production index grew 14.5% YoY in October, according to the Ministry of Economic Affairs (MOEA), supported by robust output in electronics, optoelectronics, and precision machinery.
However, the manufacturing purchasing managers’ index published by CIER showed only a modest improvement, rising to 50.3 in October. CIER noted that while AI-related power and machinery equipment segments expanded, many other industries — including basic materials, petrochemicals, transportation equipment, and parts of electronics — still reported contractionary readings or cautious outlooks.
Inflationary pressures remained limited. DGBAS data shows the consumer price index (CPI) rose 1.48% YoY in October, while producer prices fell by 3.50% annually, reflecting easing upstream cost pressures. The Central Bank expects CPI to average about 1.75% in 2025, keeping inflation comfortably below its 2% alert level. Economists said the tame price environment allows policymakers to maintain stable rates while monitoring capital inflows, which have strengthened on the back of AI-driven capital expenditure.
Labor-market conditions held steady but uneven. The most recent unemployment figure released by DGBAS indicated modest improvement, though analysts warn that hiring gains are concentrated in high-tech manufacturing and related logistics. Service industries continue to report weak demand, raising concern that wage growth may not accelerate meaningfully without a rebound in consumption. With real wages still growing at less than 2% YoY in the third quarter, purchasing power remains constrained.
Retail activity has reflected this caution. Available MOEA indicators show that consumption has lagged the broader economic upturn, with analysts pointing to tariff uncertainty, exchange-rate movements, and subdued confidence in the property market. High household indebtedness and tighter lending rules continue to weigh on housing transactions, although comprehensive national sales and price data for late 2025 have yet to be released.
Financial markets were broadly stable through mid-fourth quarter. The TAIEX remained supported by strong corporate earnings and optimism about Taiwan’s role in global AI supply chains, and the New Taiwan dollar appreciated modestly amid strong export receipts. Bond yields stayed low, reflecting market confidence that inflation will remain subdued.
Strong Year Finish Despite Uncertainty
In November, a series of high-profile corporate developments highlighted not only the continued strength of Taiwan’s high-tech sector but also the new opportunities emerging as global supply chains evolve.
Reuters reported that Hon Hai Precision Industry Co. (Foxconn) secured regulatory approval to invest an additional US$569 million in its Wisconsin operations, a move aimed at expanding production of AI server components amid surging global demand.
Analysts said the expansion reflects Foxconn’s strategy to deepen its North American footprint as clients diversify manufacturing bases and seek greater proximity to end markets. Reuters also reported in November that Foxconn approved up to NT$42 billion (around US$1.34 billion) for an AI-compute cluster and supercomputing center in Taiwan.
Separately, Taipei-headquartered Delta Electronics announced plans in November to increase production of power-management components and cooling systems at its North American facilities. The company said the move is aimed at meeting demand from data-center operators and electric-vehicle manufacturers seeking shorter lead times and regionally diversified supply networks.
Industry observers noted that Delta’s expansion highlights a key emerging opportunity for Taiwanese suppliers: as global manufacturers strive to secure energy-efficient components for AI servers, cloud infrastructure, and EVs, Taiwan’s long-established strengths in power electronics are attracting renewed investment.
Domestically, Nikkei Asia reported that German multinational Merck Electronics has begun qualification for its more than US$580 million chemical plant in Kaohsiung, which will become the company’s largest semiconductor-materials site worldwide when it enters mass production in 2026. The facility will supply thin films and specialty gases for advanced chipmaking and is part of Merck’s “local for local” strategy to reinforce regional supply-chain resilience as customers shift to more complex 3-nanometer-class processes.
Despite the buoyant external environment, policymakers remain cautious. The United States has continued to examine tariff and supply-chain policies affecting semiconductors and related electronics.
Reuters reported in late October that Washington’s requests for expanded chip production on American soil have met resistance from Taiwanese officials, who argue that large-scale relocation would compromise ecosystem efficiency. Taiwan has instead sought to broaden agricultural imports from the United States and advance bilateral cooperation to ease tensions.
Global conditions also shifted in late November in ways that will shape Taiwan’s early-2026 outlook. The OECD’s latest Economic Outlook warned that global growth is set to slow as high borrowing costs and geopolitical tensions weigh on trade, even as strong AI-related investment continues to support capital spending in advanced economies.
The data suggest that Taiwan will enter 2026 with substantial momentum, powered by record export performance and persistent global demand for AI infrastructure. But the broader challenge remains unchanged: translating external strength into a more balanced recovery driven by household spending, resilient service activity, and a more stable property market. Without firmer domestic demand, the gap between high-tech acceleration and everyday economic conditions may remain a defining feature of Taiwan’s economy in the coming year.
