Taiwan
Taiwan
Last updated: March 2023
Taiwan’s high-quality human capital and physical and technological infrastructure support a high ranking on business climate indicators. Measures of creditworthiness and economic growth are broadly in line with other advanced economies. Although Taiwan has high GDP per capita, incomes significantly lag the average of advanced economies.
| This chart is a cobweb diagram showing how a country measures up on four important dimensions of economic performance—per capita income, annual GDP growth, business climate and creditworthiness. Per capita income is in current US dollars. Annual GDP growth is the five-year average forecast between 2023 and 2027. Business climate is measured by the World Bank’s 2019 Ease of Doing Business ranking of 190 countries. Creditworthiness attempts to measure a country's ability to honour its external debt obligations and is measured by its OECD country credit risk rating. The chart shows not only how a country performs on the four dimensions, but how it measures up against other regional countries. |
Economic outlook
Taiwan’s export-oriented economy slowed in 2022, as exports slumped on the back of lower Chinese demand amid COVID-19 restrictions there and moderating global electronics demand. Total exports declined by 23.2% in 2022. As a result, Taiwan’s real GDP growth fell to 3.3% in 2022 from 6.6% in 2021.
Softening global demand and high global inflation will weigh on Taiwan’s exports, and in turn, growth prospects in 2023. Taiwan’s central bank is likely to continue to hike interest rates to temper inflation; further rate hikes and slowing domestic wage growth will weigh on consumer confidence and household spending. As such, the IMF expects growth to further moderate to 2.8% in 2023.
In general, Taiwan’s commanding position in the global semiconductor supply chain underpins economic activity. A sustained rise in demand for Taiwan’s integrated circuit chips is being driven by accelerated digitisation following the COVID-19 pandemic, 5G network deployment, high-performance computing, electronic vehicles, industrial automation and artificial intelligence. Taiwan’s economy will also benefit from ongoing global chip shortages and China’s stockpiling as the economy reopens. Taiwan's dominance in high-tech exports should continue to attract large capital investments.
Risks are significant and tilted to the downside. Even high inflation and sharper interest rate hikes globally could weaken external demand more than expected. Additionally, the potential for worsening geopolitical tensions could see technology companies relocate manufacturing bases outside of Taiwan.
The IMF expects growth to average 2% per annum between 2024 to 2027. Stable international trade and cross-strait relations are key to Taiwan’s economic performance over the longer term. Continued access to customers and suppliers from China and the US remains critical for Taiwan’s export-oriented manufacturers to maintain external competitiveness and productivity.
Alongside continued economic growth, per capita income will increase towards US$45,000 in 2027 according to IMF projections, up from around US$35,000 in 2022. That said, high inflation is squeezing real wage growth and constraining private spending
Country risk
Country risk in Taiwan is low. Taiwan has an investment grade sovereign credit rating from private ratings agencies and an OECD country credit grade of 1. This indicates a relatively low likelihood that it will be unable or unwilling to meet its external debt obligations.
The risk of expropriation in Taiwan is low. According to the US investment climate statements, under Taiwanese law, the authorities may expropriate property whenever it is deemed necessary for the public interest, such as for national defence, public works and urban renewal projects. Taiwan law requires fair compensation must be paid within a reasonable period when the authorities expropriate constitutionally protected private property for public use.
Taiwan scores in the top quartile in most areas of governance, and higher than other advanced economy peers. Broadly stable economic outcomes despite elevated geopolitical tensions and the toll of the COVID-19 pandemic highlights Taiwan’s strong governance and institutions.
Taiwan’s political risk is on par with its overall rating. Political risk relates to the potential for further escalation in geopolitical tensions that adds to trade and growth risks. Taiwan scores slightly lower than advanced economy peers on measures of political stability and absence of violence.
Bilateral relations
Taiwan is Australia’s eighth largest trading partner. Total goods and services trade amounted to around $24 billion in 2021, up from $16.3 billion in 2020. Resources and energy—coal, iron ores, natural gas, aluminium and copper—are the chief goods exports; Taiwan is Australia’s fourth largest market for resources and energy exports. Education-related exports are also significant. Major Taiwanese goods imports to Australia include refined petroleum, telecommunication equipment and parts, computers, motorcycles and tobacco.
Taiwan is Australia’s fifteenth largest source of student enrolments. Taiwanese student enrolments had been gradually rising before the pandemic, but have dropped steadily since 2020. Taiwan’s drive to up-skill its labour force creates opportunities for education exports ahead.
Before the pandemic, Taiwan was Australia’s thirteenth largest source of tourism. Taiwan’s international borders for outbound tourism opened in September 2022, limiting the recovery in tourism last year. A full year of open international borders should support recovery in Taiwanese demand for Australian tourism, and broader service exports, in 2023.
The value of two-way investment is growing, albeit from a low base. Australia’s stock of investment in Taiwan was $19.9 billion in 2021, up 28.7% from 2020. Taiwan’s stock of investment in Australia is smaller, reaching $14.4 billion in 2021, down 10.2% from 2020. Taiwanese investment in Australia has expanded beyond minerals and resources to include biomedicine, renewable energy, energy storage, tourism infrastructure, food and financial services. Looking ahead, Taiwan’s energy transition policy is creating opportunities for Australian investment in the development of Taiwan’s offshore wind industry and also Taiwanese investment in Australian LNG, hydrogen projects and solar energy.
