Kicking Off 2026 on Solid Ground
Taiwan closed 2025 on firm footing as exports surged to record highs and growth forecasts were revised sharply upward. At the same time, policymakers cautioned about the increasing complexity of external risks.
At its December 18 policy meeting, the Central Bank left the benchmark discount rate unchanged at 2.000%, where it has remained since March 2024, citing stable inflation and sustained momentum in technology exports. The bank raised its full-year GDP growth forecast for 2025 to 7.31%, up from 4.55% in September, reflecting what officials described as an exceptional surge in AI-driven exports and private investment.
Private-sector economists issued similar assessments. Analysts at Barclays and Nomura said Taiwan had become the primary beneficiary of the global buildout of artificial intelligence infrastructure, citing unprecedented demand for AI servers, GPUs, and advanced semiconductor manufacturing capacity.
Exports Drive Economic Growth
According to Ministry of Finance data, Taiwan’s exports reached a record US$640.75 billion in 2025, up 34.9% year-over-year (YoY). The most dramatic acceleration occurred in the fourth quarter, when exports rose 49.7% YoY in October, 56% in November, and 43.4% in December, marking the fastest sustained expansion since the pandemic-driven boom of 2021. Electronics components, information and communications technology products, and semiconductor-related shipments accounted for the bulk of gains.
Exports to the United States surged in late 2025, as demand for AI servers and high-performance computing equipment accelerated. The Ministry of Economic Affairs (MOEA) reported that export orders from the United States rose 56.1% YoY in November, reflecting the strength of the AI investment pipeline.
The MOEA said Taiwan continues to be one of the largest beneficiaries of the global AI infrastructure buildout, with domestic companies supplying advanced chips, servers, power management systems, and packaging services. Officials cautioned, however, that the rapid pace of capacity expansion could pose short-term risks if global investment cycles moderate.
Factories continued to operate at elevated utilization rates. The industrial production index rose 16.42% YoY in November, according to MOEA data. Growth remained heavily concentrated in high-tech industries, while traditional sectors such as petrochemicals, plastics, and basic metals lagged. Officials described the divergence as increasingly structural rather than cyclical.
Domestic Cooling Cause for Concern
Domestic demand was subdued last year. Though retail sales rose a modest 0.9% YoY in December, full-year retail sales slipped 0.2% in 2025, ending a nine-year growth streak. Analysts said cautious household spending, weak auto demand, and a cooling property market continued to weigh on consumption.
The unemployment rate stood at 3.3% in December 2025, according to the Ministry of Labor, among the lowest levels in Asia. Hiring remained strong in semiconductor manufacturing and AI-related services, though officials noted a mild rise in unpaid leave cases within consumer-facing sectors such as retail and hospitality.
Housing activity continued to cool, as transactions across Taiwan’s six major municipalities fell roughly 25.5% in 2025, according to Ministry of the Interior data, marking the steepest annual decline since 2016. The slowdown reflects tighter mortgage regulations, higher borrowing costs, and deteriorating affordability amid rising service prices.
Inflation pressures have remained contained. Data from the Directorate General of Budget, Accounting and Statistics shows that consumer prices rose 1.66% in 2025, while the December CPI increased 1.31% YoY. Service prices continued to outpace that of goods, with catering and rental costs showing the strongest increases. The Central Bank projects that inflation will ease further in 2026, with price growth remaining comfortably below 2%.
The New Taiwan dollar strengthened modestly against the U.S. dollar toward the end of 2025 on record export receipts and capital inflows. Central Bank officials reiterated their readiness to intervene to prevent disorderly market movements, warning that excessive appreciation could erode exporter competitiveness amid ongoing trade uncertainty.
Tariff Agreement Brings Clarity
Taiwan confirmed that U.S. tariffs on its exports had been reduced from 20% to 15% under a revised reciprocal tariff arrangement announced in January 2026, providing exporters with greater predictability in pricing and investment planning. According to the Executive Yuan, the agreement applies on a non-stacking basis, ensuring the tariff will not be compounded on top of existing most-favored-nation duties.
The Cabinet also said the arrangement includes preferential consideration for Taiwan under any future U.S. Section 232 national security investigations, a provision viewed as particularly significant for the semiconductor and advanced manufacturing sectors.
This easing of tariff uncertainty appears to be feeding into broader business sentiment. According to Dun & Bradstreet’s Global Business Optimism Insights Q1 2026 report, global business optimism rose 3.5% quarter-over-quarter (QoQ) after four consecutive declines, with respondents citing clearer tariff policies and improved trade visibility as key drivers. Taiwan stood out among surveyed economies, with optimism rising 12.4% QoQ, reflecting stronger confidence in export orders and supply chain planning amid improved policy clarity.
The U.S.-Taiwan tariff framework is supported by a memorandum of understanding (MOU) on investment cooperation, signed alongside the agreement, that establishes mechanisms to expand two-way investment, strengthen supply-chain collaboration, and enhance regulatory dialogue, according to government briefings. While the MOU itself is not legally binding, officials have described it as a precursor to a forthcoming Agreement on Reciprocal Trade, which is expected to be submitted to the Legislative Yuan for ratification following completion of legal review.
Analysts cited by the Taipei Times note that the tariff reduction and non-stacking treatment may modestly ease pressure on exporters, though they caution that legislative approval remains the next critical hurdle and that prolonged political scrutiny could reintroduce uncertainty for businesses planning long-term cross-border investment.
Global monetary policy divergence adds another layer of uncertainty. The U.S. Federal Reserve began cutting interest rates in late 2025 as growth cooled, while the European Central Bank remains cautious and the Bank of Japan faces pressure to tighten monetary policy amid persistent yen weakness. For Taiwan, policymakers have emphasized that gradual, carefully calibrated adjustments will be safer than abrupt shifts that could destabilize financial markets.
Equity markets have remained resilient. The TAIEX index traded near record territory entering 2026, supported by strong earnings in semiconductor and AI-related companies. Government bond yields edged higher toward the end of January, with 10-year yields around 1.4%, reflecting normalization rather than inflation stress.
Foreign investment continued to favor high-tech sectors. Government and industry tracking shows foreign direct investment inflows running in the billions of U.S. dollars per quarter in 2025, with a majority directed toward semiconductors, AI infrastructure, and advanced manufacturing.
