Taiwan growth nears 6 percent on AI demand

Taiwan’s economic outlook strengthened sharply as officials projected growth close to 6% for 2025, driven by explosive global demand for AI semiconductors, high-bandwidth memory and advanced packaging technologies. The AI hardware cycle has become the dominant engine of Taiwan’s external sector, reshaping industrial output, export composition and corporate margins across the technology ecosystem.

The mechanism behind this expansion lies in a multi-year capital-spending boom by hyperscalers—U.S., European and Asian data-centre operators—racing to build the infrastructure needed for AI training, inference and edge computing. Taiwan’s flagship firms—TSMC (2330.TW), ASE Technology, MediaTek—sit at the centre of this build-out, supplying cutting-edge chips and component technologies that no other jurisdiction can replicate at equivalent scale or yield.

Record capital expenditure by global cloud companies is translating into substantial export momentum. Semiconductor exports rose in double digits, boosting industrial production and lifting manufacturing PMI readings. Taiwan’s supply chain also benefits from “China Plus One” diversification, with foreign firms shifting advanced-node production away from mainland China due to geopolitical risk and export-control concerns.

The macro impact is broad but uneven. Export-driven sectors are flourishing, driving GDP gains, strengthening fiscal revenues and improving Taiwan’s current-account position. Technology wages have risen, supporting segments of domestic consumption. Yet non-tech sectors—retail, hospitality, traditional manufacturing—remain subdued due to high housing costs, demographic decline and uneven wage growth outside the electronics industry.

Financial markets have reacted strongly. The TAIEX has trended upward, with semiconductor stocks outperforming and pushing index valuations toward multi-year highs. The New Taiwan Dollar faces appreciation pressure from strong FX inflows, prompting authorities to manage volatility to protect export competitiveness.

Risks remain concentrated in geopolitics and supply-chain constraints. A re-intensification of U.S.–China tensions could trigger additional export-control measures affecting advanced chips. Capacity bottlenecks in critical inputs—EUV equipment, specialty gases, advanced substrates—could limit output expansion. Domestic structural weaknesses, such as labour shortages and low productivity growth in non-tech sectors, remain long-term vulnerabilities.

Forward indicators include global hyperscaler capex commitments, semiconductor-booking trends, TSMC’s quarterly guidance and cross-strait tensions affecting risk sentiment. If capex growth persists through 2026 and supply-chain diversification continues, Taiwan could sustain above-trend growth.

Taiwan’s near-6% growth trajectory underscores a fundamental shift: its economy is becoming increasingly dominated by AI-driven export activity. While this concentration brings risks, it also cements Taiwan’s position as an indispensable node in the global technology order.