Taiwan’s central bank raised its economic growth forecast for 2025 to 7.31 % today, underscoring the impact of an AI-driven export boom — particularly in advanced semiconductors — even as it maintained its benchmark interest rate at 2 %. The bank’s decision to hold rates reflects a balancing act between supporting growth and monitoring inflation, which is expected to ease next year. Taiwan’s export performance was buoyed by robust demand for semiconductor chips and related technology components, reinforcing the island’s critical role in global tech supply chains. Despite facing U.S. tariff challenges on certain goods, Taiwan’s tech sector, led by manufacturers like TSMC, has continued to expand strongly. Central bank officials noted geopolitical risks and trade tensions but affirmed their current monetary stance as appropriate given strong growth prospects.

The forecast revision from 4.55 % to 7.31 % marks a significant upward adjustment, indicating how pivotal semiconductor exports have become for the Taiwanese economy. Such growth outpaces many regional peers and underscores how advanced manufacturing — especially AI-related chips — is reshaping economic profiles. Analysts say Taiwan’s export boom may offset weakness in other sectors and shore up overall GDP performance. The forecast for 2026 remains robust, though lower, reflecting expectations of continued but moderated expansion in global tech demand.

Investors have welcomed the central bank’s optimism, with Taipei markets showing gains in tech-oriented equities as growth projections improved. Market participants are watching how AI investment will influence regional trade flows and capital spending decisions. While U.S. tariffs on some Taiwanese products present a strategic challenge, exemptions on key semiconductors have helped maintain export momentum. Some analysts caution that shifts in global trade policies could create volatility in export figures, though current trends remain positive.

Monetary policymakers globally will likely take note of Taiwan’s strong performance, as tech exports remain a pillar for growth amid uncertain consumption patterns elsewhere. Central banks in other Asian economies are balancing similar dynamics: strong export sectors versus domestic demand uncertainties. Taiwan’s strategy highlights the importance of technology and innovation as growth drivers in the broader Asia-Pacific region.

For the domestic economy, the revised forecast strengthens confidence among businesses and consumers, even as external risks persist. Taiwan’s ability to sustain high growth, driven by semiconductor demand and AI applications, could encourage further investment in related sectors. However, reliance on a few key industries underscores the need for diversification strategies to guard against cyclical downturns.

Source: Reuters.