Macro trends

Taiwan has experienced a strong, export-driven recovery this year, closely aligning with our forecast for a global tech sector rebound. Inflation pressure has remained persistent, in line with our expectations of post-election domestic electricity price hikes. On the policy front, the central bank’s tightening of credit rules in the property market and RRR (reserve requirement ratio) hikes were expected, although the 12.5bps rate hike in the March meeting exceeded expectations.

The economy is projected to grow 3.0% in 2025, slower than 4.4% in 2024, but still consistent with long-term growth trends.

Export growth is expected to decelerate but remain in expansionary mode in 2025. Demand for AI data centres and servers may moderate after this year's strong surge. However, demand for AI-enabled mobile phones, PCs, and other consumer electronics could increase in 2025. The global semiconductor sector typically experiences an expansion cycle lasting around 30 months. The current cycle, which began in September 2023, has the potential to extend through the end of 2025.

Consumption growth is likely to decelerate but remain on trend in 2025. The strong wealth effects from property and stock market rallies this year may fade. Investment and speculative demand in the property market could diminish due to tightened credit controls, property taxes, and anti-speculation measures. However, demand from first-time homebuyers and those seeking home upgrades is expected to remain resilient. The central bank has recently provided exemptions to support genuine homebuyers, including those inheriting homes, individuals with relocation needs, and buyers who signed purchase agreements before the implementation of these measures.

CPI inflation is projected to reach 1.9% in 2025, lower than the 2.2% expected in 2024, but still within the upper half of the 1.5-2.0% range.

Food and housing prices are expected to slow on a YoY basis in 2025, following the boosts from several typhoons, two electricity price hikes, and housing rent increases this year. Transportation costs are also likely to remain subdued YoY, assuming global crude oil prices stay around USD 70-80 per barrel.

However, underlying inflation is expected to remain stable due to wage increases and ample liquidity conditions. The average base wage growth is projected to stay at 2.5-3.0% in 2025, supported by steady employment demand, a shrinking working-age population, strong corporate profit growth, and the government's push for minimum wage increases (4.1% for 2025). Money supply growth M2 is expected to slow to around 4.5% in 2025, due to the two RRR hikes and tightened credit conditions this year. However, the disinflationary effects of these measures will take time to materialize.

Regarding monetary policy, the central bank is expected to maintain the policy discount rate at 2.00% in 2025.

Additional rate hikes seem unlikely, as overall inflation pressure is expected to ease. Rate cuts are also unlikely, as inflation-adjusted real rates will remain close to zero, and rate cuts would contradict the central bank’s efforts to cool the property and credit markets.

Further RRR hikes and additional credit controls (i.e., adjustments to loan-to-value ratios for housing loans) cannot be ruled out. The central bank has indicated that it will continue to monitor the "three red lines" – property prices, real estate loan growth, and real estate loan concentration ratios – to decide whether further tightening measures are necessary. There is no clear evidence of improvement in these three indicators following the September tightening. More time will be needed to assess the effectiveness of the existing measures and determine the next steps.

Trump risks

Global trade tensions are expected to escalate in 2025, following Trump’s victory in the US presidential elections.

The US-China trade war and tech war will likely resurface under Trump 2.0, resulting in collateral damage to Taiwan. Trump has threatened to impose 60% tariffs on Chinese imports, which would impact Taiwanese manufacturers based in China. While the share has decreased from 48% in 2017 to 38% in 2023, China remains a key overseas production base for Taiwanese companies.

Key products that Taiwanese companies produce in China include information and communication products, electrical machinery, optical instruments, and electronic parts and components. Among these, information and communication products and electrical machinery have a high resale ratio to the US, making them particularly vulnerable to Trump’s proposed tariffs on Chinese exports.

In addition, Trump is likely to further tighten controls on the supply of advanced technology to Chinese companies, which could impact Taiwanese tech suppliers within the supply chain. Recently, TSMC was reportedly requested by the US Department of Commerce to suspend sales of all 7nm or more advanced chips to AI/GPU clients in China. According to Trendforce, China still accounts for a significant portion of TSMC’s revenues, contributing 11%-13% in the first three quarters of this year.

Taiwan could also face direct impacts from trade tensions under Trump 2.0. Trump has threatened to impose 10-20% universal tariffs, which would directly affect Taiwan’s exports to the US. The US currently accounts for 24% of Taiwan’s exports in the first ten months of 2024, a much higher share than the 12% in 2017. Taiwan's top exports to the US include information and communication products, electronic parts and components, machinery, electrical machinery, and iron and steel.

However, universal tariff hikes on all US imports may have limited impact on the relative price competitiveness of Taiwanese products. The actual implementation of tariffs will also depend on how Taiwan engages with Trump’s administration. During Trump’s first term, Japan and South Korea made concessions by agreeing to import more US cars and agricultural products to avoid steep tariffs on their automobile exports to the US. Taiwan may consider pursuing a similar strategy this time.

Trump may also pressure Taiwan to invest more in the US semiconductor sector. TSMC has invested a cumulative USD 24bn in US foundries since 2020, with plans to mass-produce 4nm chips by 2025. The Trump administration may push for investment in more advanced 2nm technology, presenting greater challenges for Taiwan to retain its leadership in semiconductor technologies and maintain its competitive edge in the global market.

Sectoral opportunities

#1: AI
# 2: Green energy transition
# 3: Silver economy
# 4: Asset management
# 5: China+1 and Taiwan+1


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