The Fitch Solution Taiwan Risk Report, which is published by BMI, gives a comprehensive political and economic overview of Taiwan’s current situation, as well as a ten-year forecast. For the Q4 edition, key findings include the following:
Taiwan's economy experienced a stronger-than-expected recovery in the first half of 2024, with real GDP growing by 5.1% year-on-year in the second quarter, surpassing both consensus and prior forecasts. This solid performance has led to an upward revision of the GDP growth forecast for the year from 3.5% to 3.8%. However, despite this promising start, growth is expected to slow in the latter half of the year.
The political landscape remains relatively stable, with its democratic system continuing to mature. Taiwan’s Political Risk Index score of 37.4 suggests a resilient political environment, even as its Governance Risk score remains low at 17.1.
Main political challenges remain in the island’s ability to navigate its complex relationship with Mainland China, with the Democratic Progressive Party (DPP) advocating for a more distinct Taiwanese identity, while the Kuomintang (KMT) favors closer ties with Beijing. Rising discontent with both major parties has given rise to the Taiwan People's Party (TPP), which will likely play a more significant role following the DPP's loss of its majority in the legislature during the January 2024 elections.
Economically, Taiwan's high-tech industries and educated workforce continue to drive its status as an advanced economy. However, the island’s dependency on trade, particularly with the U.S. and Mainland China, exposes it to external risks. Taiwan’s aging population also presents long-term fiscal challenges, with more than 20% of the population expected to be over the age of 65 by 2025.
The economy continues to benefit from robust exports, particularly in semiconductors, which have been a key driver of growth. Exports rose by 4.9% year-on-year in the second quarter, but this pace is anticipated to slow in the coming months due to weakening global demand. Gross capital formation also made a significant contribution to GDP, recovering after a period of contraction, although this rebound is largely attributed to favorable base effects. Taiwan’s foreign exchange reserves remain strong, at over USD 570 billion as of December 2023, positioning U.STaiwan well in terms of balance-of-payment dynamics.
To conclude, Taiwan's long-term GDP growth and economic performance will largely depend on the performance of its semiconductor industry, as well as its ability to maintain political and trade stability, particularly with major partners like the U.S. and China. But despite these challenges, Taiwan still stands out with the lowest economic risk in the region, achieving first place in both the Short- and Long-Term Economic Risk Index and ranking first globally in the Long-Term Economic Risk Index.
Read the full report on the official website.
Source: Fitch Solutions