The risk report on Taiwan, published by BMI—a FitchSolutions Company— in May 2024, provides political and economic insights and forecasts for the next ten years. Key findings include the following:
In the first quarter of 2024, Taiwan's real GDP saw a surprising 6.5% year-over-year rebound, also known as the improvement in performance compared to the first quarter of 2023. This led to the real GDP growth forecast to rise from 2.9% to 3.5%. However, in the upcoming quarters this growth is supposed to slow down as private consumption is expected to get less.
The Taiwanese Central Bank surprisingly raised the policy discount rate to 2% in March 2024, i.e. the interest rate charged to commercial banks for borrowing short-term funds. This decision was made to ensure price stability. It is expected to hold this rate for the rest of the year.
Politically, Taiwan's democracy remains resilient with a low overall risk score of 36.1, but governance challenges persist due to a split between the ruling Democratic Progressive Party (DPP) and the conservative Kuomintang (KMT).
Social stability is strong. Per capita incomes are relatively high. Additionally, the poverty rate is very low. Nevertheless the fact that the population is ageing causes problems in the long-run, especially for public finances. Hence, chances are high that immigration might be a solution to this problem.
Security risks include the controversial Mainland China-Taiwan tensions. Still, a large-scale attack, invasion or full-scale naval blockade is unlikely due to the risks involved, including the possibility of military intervention by the US.
Economy-wise, Taiwan's strengths lie in its advanced industries. Taiwan's massive 90% share of the world’s semiconductor market highlights its geopolitical significance. This goes hand in hand with the economic growth mentioned earlier as the main force behind the economic growth was exports, specifically semiconductors. Nonetheless. Taiwan is vulnerable because a possible decline in economic and political relations between Taiwan and Mainland China could create considerable uncertainty for the economy and investors.
Looking ahead, meaning the next ten years, Taiwan's economy is expected to benefit from a more resilient global outlook due to exports. In particular, the export of semiconductors will mainly drive the growth.
The average real GDP growth is expected to be 2.6% annually from 2024 to 2033. According to the report, Taiwan’s real GDP growth is presumed to exceed that of South Korea. Yet, the trade surplus, i.e. when exports exceed imports, will likely go down since the aging population could require more imports from abroad.
Despite inflation and monetary challenges, no rate cuts are anticipated for 2024. In a bullish scenario, i.e. if prices were to rise, strengthened ties with the US and India could boost growth to 3.4%. On the other hand, in a bearish scenario, i.e. if prices were to fall, demographic shifts such as the problem of the rapidly ageing population and the increasing tensions with Mainland China could affect the government’s financial condition.
Ultimately, Taiwan's economic and political stability will depend on navigating these internal and external challenges over the next ten years.
Read the full report on the official website.
Source: Fitch Solutions