The Taiwanese Economy in May 2026

The United States and Iran have signed a Memorandum of Understanding, advancing a ceasefire agreement and the resumption of normal navigation through the Strait of Hormuz, thereby reducing the risk of global energy supply disruptions. Nevertheless, the effectiveness of implementing these agreements remains to be seen. Overall, while the possibility of localized conflicts re-escalating cannot be ruled out, U.S.-Iran relations have moderated considerably compared to previous months, and geopolitical risks have eased.
On the domestic front, sustained expansion in AI demand has underpinned robust growth in semiconductor-related supply chains, keeping the electronics and machinery sector in expansion territory. Looking ahead, the anticipated resumption of navigation through the Strait of Hormuz is expected to alleviate raw material supply pressures and reduce costs; however, the chemical industry continues to face headwinds from sluggish end demand and intensifying market competition. By contrast, the electronics and machinery sector maintains a relatively favorable outlook, supported by continued growth in AI applications and advanced semiconductor demand. On balance, manufacturers hold a cautiously neutral view on business conditions for both the current month and the next six months, though the proportion of optimists continues to exceed that of pessimists. In the services sector, May saw strong performance driven by buoyant AI-related market sentiment, rising stock prices and trading volumes, and increased corporate lending demand, all of which supported growth in finance-related industries. The hospitality and food service industry also benefited from the Labor Day holiday and Mother's Day, with a pickup in travel and dining demand contributing to improved business conditions.
Despite ongoing challenges from construction waste disposal and rising building costs, the construction sector recorded improvement in May, supported by accelerated progress on technology plant and office projects and the completion of preliminary work on public infrastructure projects. Looking ahead, business conditions over the next six months are expected to continue expanding, underpinned by infrastructure investment and AI-related facility construction demand. In the real estate sector, transaction volumes recovered in May from the prior month, as the impact of Middle East conflicts began to fade and pre-expiration buying activity emerged ahead of the sunset of the Xin Qing'an policy. Nevertheless, with credit controls remaining in place and a wait-and-see sentiment persisting in the market, the housing market is projected to exhibit declining volumes with stable prices over the next six months.
Based on a survey of enterprises conducted by this institute and subsequent model estimation, the composite indicators for manufacturing, services, and construction all rose in May. The composite indicators for manufacturing and construction have advanced for two consecutive months, while the services composite indicator has risen for three consecutive months.
The continued global boom in AI infrastructure investment has driven robust demand for high-end servers, semiconductors, and related products, while price increases across the electronics supply chain have gradually materialized, pushing the year-on-year export growth rate from 39.0% in April to 51.7% in May 2026. On the import side, deepening international specialization within the AI supply chain and export-derived demand sustained growth in imports of electronic components and information and communications technology products. Concurrently, rising international prices for crude oil and base metals further elevated import values, lifting the year-on-year import growth rate from 29.2% in April to 54.9% in May, with overall import momentum remaining strong. For the period January to May 2026, exports grew 48.7% year-on-year compared to the same period in 2025, while imports rose 37.8%, resulting in a trade surplus of USD 85.21 billion, representing a year-on-year increase of 95.2%.
Elevated international oil prices, driven by ongoing Middle East tensions, pushed up retail gasoline prices, airfares, and overseas tour package costs on a year-on-year basis. Adverse weather conditions also drove vegetable prices higher. As a result, year-on-year growth rates for fuel and transportation costs both expanded notably from April, together contributing approximately 0.64 percentage points to the overall CPI growth rate, an increase of 0.19 percentage points from April. Additionally, heavy rainfall in late April disrupted vegetable supplies, and a low base effect from stable weather and subdued vegetable prices a year earlier further amplified food price inflation. Taking these factors together, the overall CPI year-on-year rate rose from 1.73% in April to 2.20% in May, reaching its highest level since April 2025. The core CPI year-on-year rate also edged up from 1.90% to 2.12%, indicating a broadening of inflationary pressures. The overall PPI year-on-year rate climbed from 8.83% in April to 14.11% in May, the highest reading since June 2022. For January to May 2026, the CPI year-on-year rate averaged 1.52%, while the PPI year-on-year rate averaged 4.90%.
The average unemployment rate for January to May stood at 3.30%, down 0.02 percentage points from the same period a year earlier. In terms of wages, after adjusting for inflation, the average real regular earnings per person rose 1.61% year-on-year for January to April, while the average real total earnings per person increased 1.95% over the same period.
The weighted average lending rate for new loans extended by the five major domestic banks (Bank of Taiwan, Land Bank of Taiwan, Taiwan Cooperative Bank, Hua Nan Commercial Bank, and First Commercial Bank) stood at 2.208% in May, up 0.002 percentage points from 2.206% in April. In the equity market, despite continued disruption and volatility stemming from Middle East tensions, market participants maintained an optimistic outlook on AI industry prospects. Further buoyed by NVIDIA's strong earnings forecast and AMD's announcement of a USD 10 billion investment plan in Taiwan, capital flows were directed toward large-cap stocks such as TSMC and AI supply chain equities. Broad-based gains across related sectors propelled the Taiwan stock market to successive all-time highs, with the TAIEX closing at 44,732.94 points at end-May, a surge of 14.92% from end-April. Average daily trading volume reached TWD 1,316.76 billion. In the foreign exchange market, growing optimism over a U.S.-Iran peace agreement contributed to a pullback in international oil prices and a shift by foreign investors toward net equity purchases, accompanied by a broad weakening of the U.S. dollar. These factors drove the New Taiwan Dollar higher, with the TWD closing at 31.384 per USD at end-May, appreciating 0.84% from end-April.

Business Survey Outcomes

The proportion of manufacturing firms that reported improved business conditions in the current survey period was 30.4%, a slight decrease of 0.2 percentage points from 30.6% in the prior month. Conversely, the proportion of those reporting a deterioration was 23.3%, an increase of 4.2 percentage points from 19.1% in the prior month. The remaining 46.2% assessed business conditions as unchanged, a decrease of 4.2 percentage points from 50.4% in the prior month.
Looking ahead, the share of manufacturers anticipating an improvement in business conditions over the next six months stood at 29.0%, slightly up 0.8 percentage points from 28.2% in the prior month. Similarly, the proportion of firms foreseeing a deterioration in business conditions were 14.6%, an increase of 2.8 percentage points from 11.8% in the prior month. Meanwhile, the share of manufacturing firms expecting business conditions to remain unchanged decreased 3.6 percentage points to 56.4% from 60.0% in the prior month.
The Manufacturing Composite Indicator rose 2.66 points to 99.58 in May 2026 from the revised April reading of 96.92, extending its increase for a second consecutive month to the highest level since June 2024. The Services Composite Indicator rose 3.89 points to 100.62 in May 2026 from the revised April reading of 96.73, extending its increase for a third consecutive month to the highest level since April 2021. The Construction Composite Indicator rose 9.64 points to 103.99 in May 2026 from 94.35 in April, marking the second consecutive month of increase.

Analyses and Outlook of Industries

Following are manufacturers' sentiments that are industry-specific in the monthly TIER surveys:

Manufacturers' sentiments that have been in decline in the May survey and are expected to deteriorate over the next six months include:
None.

Manufacturers' sentiments that have been in decline in the May survey, but are expected to improve over the next six months include:
None.

Manufacturers' sentiments that have been in decline in the May survey and are expected to remain sluggish over the next six months include:
Edible Oil Manufacturing, Flour Milling and Grain Husking, Wood and Bamboo Products Manufacturing, Printing, Industrial Chemicals, Petrochemicals Manufacturing, Plastics and Rubber Raw Materials, Petroleum and Coal Products Manufacturing, Rubber Products Manufacturing.

Manufacturers surveyed who felt the May outlook was the same as the previous month, but the outlook is expected to exacerbate over the next six months include:
Non-metallic Mineral Products Manufacturing, Cement and Cement Products Manufacturing.

strong>Manufacturers surveyed who felt the May outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Food, Frozen Food Manufacturing, Soft Drink Manufacturing, Leather, Fur and Allied Product Manufacturing, Paper Manufacturing, Glass and Glass Products Manufacturing, Metal Structure and Architectural Components Manufacturing, Electrical Machinery, Electrical Machinery, Supplies Manufacturing and Repairing, Electric Wires and Cables Manufacturing, Electrical Appliances and Housewares Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Motor Vehicles Manufacturing, Motorcycles Manufacturing, Wholesale.

Manufacturers surveyed who felt the May outlook was the same as the previous month and the trend is expected to continue for the next six months include:
Slaughtering, Prepared Animal Feeds Manufacturing, Yarn Spinning Mills, Apparel, Clothing Accessories and Other Textile Product Manufacturing, Man-made Fibers Manufacturing, Plastic Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Iron and Steel Basic Industries, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Transport Equipment Manufacturing and Repairing, Motor Parts Manufacturing, Motorcycles Parts Manufacturing, Precision Instruments Manufacturing, Education and Entertainment Articles Manufacturing, Telecommunication Services.

Manufacturers' sentiments that have improved in the May survey and is expected to deteriorate over the next six months include:
None.

Manufacturers' sentiments that have improved in the May survey and is expected to remain upbeat over the next six months include:
Manufacturing, Machinery and Equipment Manufacturing and Repairing, Cutlery and Tools Manufacturing, Industrial Machinery, Electronic Machinery, Audio and Video Electronic Products Manufacturing, Electronic Parts and Components Manufacturing, Construction, Basic Civil Structure Construction, Retail Sales, Insurance.

Manufacturers' sentiments that have improved in the May survey and the trend is expected to continue for the next six months include:
Textiles Mills, Fabric Mills, Chemical Products Manufacturing, Communications Equipment and Apparatus Manufacturing, Bicycles Manufacturing, Bicycles Parts Manufacturing, Real Estate Investment, Restaurants and Hotels, Banks, Securities, Transportation and Storage.