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23.375 million
760.46 billion
2.4 %
32687 USD
36187 km²
1.2 Child
3.7 %
2.9 %
With a per capita GDP of more than 30,000 US dollars, Taiwan is one of the richest economies in Asia excluding OPEC/OPEN+ countries, ranking alongside South Korea, Japan, Singapore, New Zealand, Australia, and Hong Kong. Over the past 10 years, GDP has grown by an average of 3.2%, making it one of the fastest growing countries among high-income countries.
In the 1960s, Taiwan experienced economic and industrial reforms and rapid social development. With the aid of the United States Agency for International Development (US$4 billion in financial aid and loans between 1945 and 1965), Taiwan built a huge industrial infrastructure, communication and education systems, Known as the top ten construction and economic miracles, Taiwan has become one of the four Asian tigers and entered the ranks of developed economies.
Under the export-oriented industrialization growth model, with economic growth and wage increase, many industries with high labor intensity lost their competitiveness in the international market. At that time, the pressure on the government from the enterprise side was also increasing day by day. After the
Wang–Koo summit, Taiwanese businessmen’s investment and trade with mainland China were finally relaxed. Over the next two decades, Taiwan also gradually moved its labor-intensive production capacity to mainland China.
With the rapid economic growth of mainland China, the demand for products exported from Taiwan has also greatly increased. Against this backdrop, Taiwan’s exports to China of the ICT industry, agriculture, forestry and fishery, and even other consumer goods for the people’s livelihood also increased rapidly during this period. Although political conflicts between China and Taiwan still existed or even intensified during this period, Taiwan’s economic growth mainly came from the increasingly close economic and trade exchanges with China.
However, as China’s infrastructure matures and its labor and talent capabilities are sufficient, the Chinese government and companies are gradually strengthening their ability to locally manufacture many intermediate products (Taiwan’s main export) and investing more in import-substitution development. Such development has also forced Taiwan’s exports to China to shift to high-tech products, and other industries are forced to explore new markets to tap growth momentum.
Even Taiwan’s leading industries are under pressure in the face of China’s own huge labor market, capital investment and growing innovation capabilities. At the same time, under the background of Sino-US competition, Taiwan has lost the opportunity to export many advanced products to China, and the smaller domestic consumer market (due to slow income growth and low private consumption ratio) is also difficult to fill this gap. Therefore, as the global economy gradually slips into low growth or even recession in the near term, it will be difficult for Taiwan to realize its potential growth potential.
While it may help fuel another wave of export dynamism through industrial consolidation and the development of indigenous innovation capabilities, China’s foreign policy repression and influence over Taiwan’s trading nations also make it difficult for Taiwan to participate in many regional trade agreements , such as CPTPP.
In Taiwan’s future development, labor productivity, Sino-US diplomacy, industrial innovation, and regional economic integration will be the most important driving forces for development.
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The latest GDP update was in October 2023, updating the data on the contribution of GDP output in various sectors for the year 2022, as a proportion of the total GDP. The data is sourced from the World Bank, IMF, and local government statistics. Predictions on the sources of GDP contribution are from the EIU.
Taiwan’s economic health has experienced a noticeable downturn, occurring concurrently with a period of relative stability in external markets such as China and the US. China’s consumer market has proven robust, but the rate of growth is likely to decelerate. In the US, despite the apparent resilience of economic data, inventory burdens cast a shadow. Advanced economies’ previous monetary policy tightening and the increasingly restrictive credit conditions in the banking sector signify a dimmer global economic forecast.
The weakening global growth outlook inevitably impacts Taiwan, leading to an expected significant cooling of its export momentum in the current year. The substantial tightening of global financial conditions and a squeeze on real incomes will most acutely affect goods exporters. Despite an anticipated moderation in the pace of contraction across Asia over the coming quarters, Taiwan’s export sector is particularly vulnerable due to its heavy reliance on China, which accounts for about 30% of its exports. This is compounded by the ongoing downturn in the semiconductor cycle. TSMC, Taiwan’s leading semiconductor company, reported a more prolonged semiconductor inventory adjustment than expected, with a predicted trough by the end of Q2 2023.
Given the current scenario, private consumption is also expected to decelerate due to more stringent financing conditions, diminishing consumer confidence, and the fading impact of the economy’s reopening. In response, authorities have rolled out a new series of cash handouts, using unspent tax revenues from the previous year. This stimulus package, amounting to roughly 0.6% of Taiwan’s GDP, is hoped to curb the decline in private consumption for the remainder of the year.
Navigating this difficult economic environment requires a careful balancing act. In light of the formidable external challenges and the sluggish domestic recovery, the 2023 GDP growth is now projected to be a marginal 0.1%, just avoiding an annual contraction thanks to timely government intervention.
Several key factors underpin the short-term outlook of Taiwan. Firstly, Taiwan’s export sector is set to contract significantly this year. As a clear indication of this, export orders in March declined by a massive 25.7% y/y in USD terms, the most substantial decline since the global financial crisis, fuelled by weaker demand across nearly all product categories. Orders from mainland China and Hong Kong suffered the most, dropping almost 34% y/y. Meanwhile, orders from the US and ASEAN also reported marginal falls. Consequently, total exports in real terms are predicted to contract by 8.8% this year.
Despite these challenges, Taiwan’s fiscal policy is anticipated to remain supportive, thanks to strong fiscal buffers. The 2023 budget has been expanded by over 20% y/y to NT$2.7tn (US$88bn), allowing for the possibility of additional support measures if the downturn proves to be more severe than expected. Possible measures could include subsidies for electricity prices or reductions in health and labor insurance schemes.
Finally, inflation is expected to continue its downward trend, easing to 2.1% this year due to the pullback in key commodity markets, persistent weakness in labor market pressures, emerging signs of improvements in supply bottlenecks, and the financial tightening associated with the USD’s strength. However, heightened imported inflationary pressures due to TWD depreciation pose a significant risk. Meanwhile, the Central Bank of Taiwan, after five consecutive rate hikes, is likely to halt further increases in response to clear signs of slowing growth momentum and easing price pressures. Based on the current growth and inflation outlook, Taiwan’s terminal rate is predicted to settle below 2% in 2023, a level likely still below neutral according to our estimates.
23.375 million
36187 km²
760.46 billion
32687 USD
3.7 %
2.9 %
78.9 %
1.2 Child
The latest GDP update was in October 2023, updating the data on the contribution of GDP output in various sectors for the year 2022, as a proportion of the total GDP. The data is sourced from the World Bank, IMF, and local government statistics. Predictions on the sources of GDP contribution are from the EIU.
- k people
- k people
- k people
- k people
- ‰
- ‰
17.8 %
22.2 %
With the 2020 legislative and presidential elections over, the DPP has a majority and the re-election of President Tsai Ing-wen makes legislation relatively easy. In the election at the end of 2022, the Kuomintang won the local government election by a significant margin compared with the previous election, and after the younger People’s Party won the mayor election of Hsinchu City, it became the first time in Taiwan to win the mayor. third party.
Taiwan’s political system is a semi-presidential system, with the so-called one government and five courts (Presidential Palace, Executive Yuan, Legislative Yuan, Judicial Yuan, Examination Yuan, and Supervisory Yuan) to realize the operation and mutual supervision of the central government. The President is mainly responsible for the relationship between the state and the military. The Legislative Yuan has the power to pass or veto bills, government budgets, and even whether to start a war.
Political power in Taiwan is dispersed among the President (Tsai Ing-wen), the Premier (Chen Chien-jen), and the Legislative Yuan. The Legislative Yuan is often regarded as the National Assembly of the Republic of China, and the Executive Yuan has the obligation to submit a policy report to the Legislative Yuan and implement relevant policies; the President focuses on formulating and launching policy directions.
When the ruling party holds a majority of seats in the National Assembly, the legislative process is relatively simple, and the opposition party with a minority of seats has no specific means to block the process. Therefore, in Taiwanese politics, resorting to sit-ins or not participating in voting to express their demands often occurs. However, Taiwan’s relatively high degree of media freedom and people actively participating in politics have enabled the ruling party to be supervised by forces outside the parliament in the legislative process.
For example, in 2006, the Kuomintang and People First Party members proposed the removal of President Chen Shui-bian. After not more than two-thirds of the legislators agreed, politicians organized the people to take to the streets and launched the Red Shirt Movement, which led to the resignation of the then president. The same incident also happened with the service trade agreement between mainland China and the cross-strait under President Ma. In addition, after the referendum law was passed, the Kuomintang organized referendums on same-sex marriage, energy policy, and the Raizhu incident, but they failed in the final election.
As global growth subsides in 2023, key policy priorities will focus on revitalizing household spending, countering the softening demand for Taiwanese goods and the impact of stringent credit conditions on investment, employment, and incomes. Authorities are predicted to employ multiple rounds of consumption stimulus to achieve this goal. The anticipated April 2023 disbursement, offering one-off subsidies of NT$6,000 (US$193) per household, may however be diverted towards savings by households, in response to dwindling consumer confidence and escalating economic uncertainties.
In her final full calendar year in office, Ms Tsai and the DPP will tackle the long-term objectives outlined in her policy agenda. Addressing intergenerational equality, extending social housing, and augmenting childcare and eldercare support will take precedence. While the government plans to implement another minimum wage increase in September 2023, the increment is projected to be relatively modest in comparison to previous years. The expected economic slowdown may constrain substantial wage augmentation in the private sector. Despite this, real average wage levels, expected to stagnate in 2023, are predicted to bounce back in 2024 as growth prospects rally. However, officials may grapple with surging living costs, the looming threat of industrial competition, and talent-poaching from China.
Efforts to upgrade the nation’s infrastructure and stimulate investment will be driven by the Forward-looking Infrastructure Development Programme and the “5+2” Industrial Innovation Programme over the next five years. Emphasis will be placed on developing digital infrastructure, with the government fostering “six core strategic industries”, including renewable energy and next-generation information technology, to attract future foreign investment.
In 2021, Taiwan extended economic incentives, such as subsidized loans and expedited land acquisition, to domestic firms affected by the China-US discord to encourage re-shoring production from China. These measures aim to leverage Taiwanese companies’ efforts to decrease their supply-chain dependency on China. Amid the worsening regional geopolitical tensions, investment repatriation is expected to continue through 2023-27.
In the diplomatic relations between Southeast Asia and India, the signature policy of the Tsai administration is the so-called “New Southbound Policy”, focusing on the ten ASEAN countries, six South Asian countries, and New Zealand and Australia. Under the impact of China’s economic slowdown, domestic active promotion of import substitution, trade obstruction to Taiwan, and US trade sanctions against China, this policy has just dispersed the dependence of many companies on the Chinese mainland market, which is why they are different For the Lee Teng-hui and Chen Shui-bian administrations, this southbound policy has created clear political achievements.
However, whether Taiwan can join the CPTPP will also affect its performance in the “new southbound market”; if it succeeds, Taiwan’s industries other than ICT will also gain more growth momentum. With the growth of national consumption power in the ASEAN countries and the Indian market, and the continuous improvement of industrial productivity, Taiwan’s economic development potential will be further stimulated.
101.31 Billion
- %
-1.7 %
29.7 %
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