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2025 Taiwan Macroeconomic Outlook
7th November 2024
The Taiwan Institute of Economic Research (TIER) convened the “2025 Economic Outlook and Industry Trends Conference” on November 7, 2024. Under the leadership of Dr. Chien-Yi Chang, President of TIER, experts from various fields presented insights into Taiwan's 2025 economic landscape, analyzing domestic and international economic trends and offering in-depth perspectives on Taiwan’s industries.
In 2024, Taiwan’s economy showed stable domestic demand, with private consumption growing by 4.1%, 2.8%, and 1.9% in the first three quarters respectively. Exports continued to grow, driven by ICT products, although non-ICT products were negatively affected by China’s overproduction and yen depreciation, showing improvement only in the third quarter. Private investment also picked up as exports expanded, with fixed capital formation rebounding to 6.6% in the second quarter. Taiwan’s economy maintained steady expansion with quarterly growth rates of 6.6%, 5.1%, and 4.0%, with an annual growth forecast above 4%.
Looking to 2025, Taiwan’s economy may be impacted by the challenges facing the U.S. and China, yet is expected to benefit from recovering European and Japanese economies, as well as strong performance in emerging markets in Southeast Asia, South Asia, Africa, and Latin America. Global growth in 2025 is expected to match that of 2024, with an uptick in trade growth that should favor Taiwan’s exports.
Globally, resilient economic conditions, combined with interest rate cuts in the U.S. and Europe, are anticipated to stimulate consumption and investment. This continued trade expansion should bolster Taiwan’s exports and private investment. Although domestic demand remains strong, net external demand is expected to rise, with Taiwan’s 2025 growth driven primarily by domestic demand. However, due to the high base effect, overall economic growth in 2025 is expected to be lower than in 2024. As per the latest forecast released by the TIER in November 2024, the GDP growth rate for 2025 is projected at 3.15%, a decrease of 0.88 percentage points from the revised 4.03% rate for 2024.
Regarding private consumption, retail and food services maintained stable growth in 2024, supported by a robust job market and wage growth. Continued wage adjustments and improved corporate profits should sustain private consumption growth, driven by bonuses, dividends, and strong interest in cultural and sports events. However, given the high base, private consumption growth in 2025 is expected to moderate, with a projected growth rate of 2.26%, down 0.43 percentage points from 2.69% in 2024.
For fixed capital formation, robust demand for emerging technologies and local supply chain investment has spurred private sector investment in 2024. The anticipated interest rate cuts in the U.S. and Europe are expected to further stimulate consumption and investment. Expansions in the semiconductor sector, the return of ICT supply chains, and increasing investments from major international companies, alongside efforts to mitigate climate change through green energy and carbon-reduction initiatives, will strengthen private investment momentum in 2025. Fixed capital formation is forecasted to grow at 4.93%, up 0.15 percentage points from 2024, with private investment growth reaching 4.80%, an increase of 0.69 percentage points from 2024.
In trade, Taiwan’s ICT exports are performing well amid the global electronics recovery and robust demand for emerging technology products. Non-ICT exports, impacted by China's overproduction and yen depreciation, only began to stabilize in the third quarter, signaling an uneven recovery pace. As interest rate cuts globally are expected to stimulate demand, IMF predicts that global trade growth will rise from 3.1% in 2024 to 3.4% in 2025. Although demand for AI and high-performance computing remains strong, high base effects are likely to moderate ICT export growth. Traditional industries are expected to offset this slowdown, sustaining Taiwan’s moderate export growth. Export and import growth rates for 2025 are projected at 4.68% and 5.27%, respectively, with exports decreasing by 3.17 percentage points and imports by 4.23 percentage points from 2024.
For prices and monetary policy, inflation in the first three quarters of 2024 was volatile due to climate disruptions and geopolitical risks, with CPI growth largely above 2%. Inflation is expected to ease globally, with Taiwan’s inflation rate gradually declining. However, uncertainties, including climate change, labor shortages, and geopolitical tensions, coupled with previous public utility rate hikes, are likely to slow the decline in inflation. Taiwan’s CPI is projected to grow by 1.87% in 2025. Regarding exchange rates, with the U.S. and EU entering rate-cut cycles, along with Taiwan's slow inflation cooling and stable economic outlook, the Central Bank of Taiwan is expected to maintain its policy. This narrowing Taiwan-U.S. interest rate spread will likely drive the TWD/USD to an average of 31.40 in 2025, appreciating by 0.65 from the revised 2024 rate.
Looking ahead to 2025, the global economy will face multiple challenges, with key risks including U.S. presidential policies, divergent central bank actions, China’s real estate market prospects, and geopolitical tensions such as the Russia-Ukraine and Middle East conflicts, all of which may impact Taiwan’s exports and influence domestic demand and consumption through financial markets and import prices.
First, as the 2024 U.S. presidential election results revealed that Republican candidate Trump has returned to the White House, his policies are expected to bring significant impacts on global political and economic developments. Trump may implement policies that drastically differ from the Democratic Party, including lowering corporate taxes, raising tariffs on trade competitors to 20%, increasing China tariffs to 60%, repealing the Inflation Reduction Act and green energy subsidies, reviving the petrochemical industry, strengthening support for Israel, demanding allies increase military spending, and potentially considering NATO withdrawal. These policies could bring substantial changes in taxation, green energy, diplomacy, and defense, subsequently affecting Taiwan's overall trade performance.
Additionally, interest rate cuts in the U.S., Europe, and China in late 2024, contrasted by rate hikes in Japan and Taiwan, have impacted the previously strong dollar, influencing global financial markets. U.S. rate cuts may boost consumption and investment, positively affecting Taiwan's exports. However, shrinking U.S.-Japan and U.S.-Taiwan rate differentials and a strengthened renminbi may pose challenges for Asian currencies. If the U.S. continues its rate cuts and applies pressure on Asian currencies, Taiwan’s exports may face headwinds due to currency fluctuations, also affecting domestic consumption via the wealth effect in the stock market.
Moreover, China's underperforming real estate sector, which accounts for 30% of the economy and 70% of household wealth, has become a key factor in its recent economic weakness. This has led to overcapacity in related industries such as steel, cement, and construction machinery, resulting in trade frictions due to dumping in foreign markets, which also adversely affects certain Taiwanese industries. While China has implemented various stimulus measures since September 2024 to stabilize its real estate market and boost international commodity prices, the excess housing inventory remains severe. The long-term effectiveness of these short-term stimulus measures remains uncertain, making it one of the variables affecting Taiwan's economy in 2025.
Finally, recent geopolitical conflicts have fueled global economic instability. The ongoing Russia-Ukraine war drove up commodity prices in 2022-2023, especially for agricultural goods. Sanctions on Russia also led to increased oil dumping, prompting China to expand petrochemical production. This conflict raised Western military spending substantially, with NATO’s 2024 defense budget increasing by 11% to USD 1.4 trillion, straining Europe’s fiscal stability and slowing recovery. Since late 2023, persistent Middle East tensions have affected energy prices and global logistics. A potential chokepoint blockade at the Strait of Hormuz and the Bab el-Mandeb could severely disrupt trade, impacting Taiwan, which relies on the Strait of Hormuz for 60% of its oil and over 20% of its natural gas. Escalating tensions in the Middle East would pose serious risks to Taiwan's energy security and European exports.
Taiwan- Data and Forecast
7th November 2024
(NT$100 million, 2016=100), %
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