Taiwan to post highest GDP growth in 39 years
Driven by surging global demand for AI hardware and advanced semiconductors, Taiwan will this year post its highest GDP growth since 1987 – 11.05 per cent.
The government has announced a gift of NT$10,000 to every citizen as an “AI bonus”.
At a news conference last weekend in Taipei, Chen Shu-tzu, Minister of the Directorate-General of Budget, Accounting and Statistics (DGBAS) said that exports were the biggest contributor to economic growth. “They have been driven by demand for electronics and information and communications technology products.”
“Other factors are stronger private investment and better than expected domestic consumption,” he said.
His department forecast exports this year of a record US$903.6 billion, 41.19 per cent up from 2025. This includes a recovery in traditional manufacturing, with tight supplies of key electronic components, including memory chips, driving up prices.
It forecast that, in 2026, private investment would grow 11.58 per cent year on year, the fastest growth in five years. “Demand for AI has prompted global customers to secure capacity through advance payments and long-term contracts,” it said.
“This encouraged local semiconductors, packaging and testing, memory, substrate and equipment suppliers to speed up expansion of their capacity,” it said.
It forecast inflation for 2026 at 2.07 per cent, while real wages in the first half rose 3.5 per cent.
Such dramatic growth has left the government flush with cash. As a result, President Lai Ching-te announced this week that the 2027 budget included a cash handout of NT$10,000 to everyone as an “AI bonus for all to enjoy”.
It will be the third such payment in five years, following NT$6,000 in 2023 and NT$10,000 in 2025.
Another outcome of the high income is an increase in defence spending in the fiscal 2027 budget, taking the amount to NT$1.12 trillion. This will take the spending above three per cent of GDP for the first time, as Taiwan faces an increasing military threat from China.
The pioneer of the island’s AI strength is Taiwan Semi-Conductor Company (TSMC). On August 10, it announced revenue in July 2026 of NT$467.58 billion, an increase of 5.6 percent from June 2026 and an increase of 44.7 percent from July 2025. Revenue for January through July 2026 totalled NT$2,872.06 billion, an increase of 37.0 percent compared to the same period in 2025.
It said that it expected 2026 revenue to increase by slightly above 40 per cent in U.S. dollar terms. It raised its capital expenditure projection to between US$60 billion and US$64 billion for this year. “AI-related demand continues to be extremely robust,” said chairman C.C. Wei.
This year TSMC stock has climbed nearly 50 per cent and accounts for more than 40 per cent of Taiwan’s benchmark index. This helped to lift the island’s total market capitalisation to US$4.95 trillion at the end of May.
This lifted Taiwan’s equity market to the fifth largest in the world, overtaking India, behind the U.S., China, Japan and Hong Kong. Investors favour companies in Taiwan and South Korea involved in production of AI-related chips.
In 1987, Taiwan’s GDP grew by 12.75 per cent. That was the year that Morris Chang founded TSMC. His business plan was to manufacture chips on behalf of other companies.
At that time, there was no “pure-play foundry” company in the world. Intel and IBM both designed and manufactured their own chips. Many people derided Chang’s plan, asking how a firm could make but not design chips.
His answer was that, in future, more and more firms would focus on design and not wish to spend billions of dollars on their manufacturing plants. TSMC would become the chip factory for these companies. How right he turned out to be.
TSMC’s success led to the development of an entire supply chain – IC design, with companies like MediaTek, VIA and Realtek: packaging and testing, with ASE and SPIL: equipment and materials, with Hermes-Epitek and Shin Etsu.
The Hsinchu Science Park, where TSMC is based, has become the world’s most complete industry cluster for semi-conductors. Within a 50-kilometre radius are all stages of the production, from design to manufacturing and packaging. TSMC cannot replicate this system at its factories abroad, in Phoenix, Arizona, Dresden in Germany and Kumamoto in Japan.
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