Compared to other Asian counterparts, Taiwan’s economy recovered quickly from the Covid-19 pandemic in 2020. This fast recovery was led by rising global demand for its high-tech products. The country has positioned itself as the world’s fourth-largest producer of electronics and the largest supplier of semiconductors.
Taiwan’s economy has achieved resilience, thanks to its relative success in containing the Covid-19 pandemic. Taiwan has also benefited from strengthening in local consumption as well as domestic investment opportunities. Backed by its export-oriented and tech-reliant growth, experts suggest its economic outlook to stay resilient.
“Taiwan’s effective response to Covid-19, robust net external asset position, and competitive private sector enabled economic growth to accelerate in 2020 despite the global pandemic,” S&P Global said.
Taiwan’s economic performance was relatively slow in 2019 due to lower international trade demand. This was led by the global economic slowdown and lack of competitiveness in Taiwan’s service sector.
Taiwan Economy Overview
Taiwan belongs to a group called the Four Asian Tigers, along with South Korea, Singapore, and Hong Kong. These regions experienced rapid industrialisation and high economic growth rates between the 1960s and the 1990s. Later, they have developed into high-income economies.
Taiwan currently ranks 20th globally in terms of nominal GDP and 34th in GDP per capita. Taiwan’s economy is also the seventh-largest in Asia. In 2020, Taiwan was the only Asian Tiger that reported positive GDP growth at 3.1%, ranking first in the Asia Pacific region. The country is ahead of Vietnam with 2.9% growth and China with 2.3% growth. Meanwhile, South Korea, Singapore and Hong Kong contracted by 1.0%, 5.4%, and 6.1%, respectively.
The International Monetary Fund has forecasted Taiwan’s GDP growth at 4.7% in 2021, before stabilising at 3.0% in 2022. The government aims to boost growth by spending in sectors such as healthcare, energy, water distribution and rail network.
The country has a total population of approximately 23.8 million. Taiwan was able to keep its unemployment rate at virtually the same level despite the pandemic. Unemployment slightly increased from 3.7% in 2018 and 2019 to 3.9% in 2020. The rate is projected to remain at 3.8% In 2021 and 2022.
Currency and Central Bank
Taiwan’s official currency is the New Taiwan dollar or TWD, which is divided into ten dimes and 100 cents. Although, cents are almost never used in transactions. The TWD has been in circulation since 1949 after replacing the Old Taiwan dollar.
The Central Bank of the Republic of China (Taiwan) serves as the country’s central bank. The central lender has decided to keep rates unchanged during its monetary policy meeting in March. The discount rate is currently set at a record low of 1.125%.
The central bank made this decision based on the strength of Taiwan’s economy amid strong foreign demand and positive domestic demand. This also means that no further stimulus is needed. The bank further decided not to lower monetary stimulus because of uncertainty in the global economic outlook.
The country’s consumer price index (CPI) is forecast to increase to 0.9% in 2021 and 1.2% in 2022. In 2020, the CPI is expected to fall to -0.2%.
Industry and Trade
While the country is known for its semiconductor and electronics industries, Taiwan’s economy is still dominated by the services industry. The services sector accounted for 62.7% of Taiwan’s GDP in 2020, employing 59.7% of the labour force.
The service sector is characterised by a lack of competitiveness. Moreover, large labour-intensive industries have started relocating from Taiwan to other countries with less labour cost. On the other hand, its tourism industry is booming. In 2019, the country hit a record of 11.84 million foreign visitors.
Taiwan’s manufacturing sector comprises more than 36% of the country’s GDP and provides jobs to 35% of the workforce. The country is one of the largest suppliers of semiconductors, computers, mobile phones, and computer screens in the world.
The agriculture sector only contributes about 2% of the GDP and employs around 5% of the labour force. Rice, sugar cane, fruits and vegetables are among the main crops produced in Taiwan.
Taiwan’s main export partners as of 2019 are China, the US, the European Union, and Japan. Meanwhile, its leading suppliers are China, Japan, the US, the EU, and South Korea. Taiwan’s economy is highly export-oriented and reliant on international trade.
Survey and Rankings
Taiwan has fallen from 13th to 15th place in the World Bank’s 2020 Ease of Doing Business 2020, but maintained its overall score of 80.9. It is currently ranked 4th among countries in the East Asia & Pacific region.
In the Heritage Foundation’s Index of Economic Freedom, Taiwan’s economy rose to the 6th freest in the 2021 Index. The country has improved its points from 77.1 to 78.6. Ranking 4th in the Asia-Pacific region, Taiwan is only less than 2 points away from transitioning from “Mostly Free” to “Free” category.
Stock Exchanges and Capital Markets
The Taiwan Stock Exchange Corporation or TWSE was established in 1961 and operated as Taiwan’s sole stock exchange since 1962. Trading takes place on the exchange between 9 a.m. and 1:30 p.m.
The Taiwan Capitalization Weighted Stock Index (TAIEX), more commonly known as the Taiwan Weighted, is the exchange’s main stock index. It covers all listed companies on the TWSE, except preferred stocks, full-delivery stocks, and newly listed stocks.
Top companies in terms of market capitalisation listed on the TWSE include Taiwan Semiconductor Manufacturing Company (TSMC), China Life Insurance Company, Hon Hai Precision Industry, Formosa Petrochemical Corporation, and MediaTek.
Taiwan’s bond market has been described to have contradictory tendencies. Although the market is large in size, the volume of transactions is often small.
So-called Formosa bonds have become an attratracive funding choice for overseas issuers recently. These bonds are issued in Taiwan but denominated in currencies other than the New Taiwan dollar.
Real Estate Market
Taiwan’s central bank was forced to implement tighter restrictions on credit standards for residential mortgages in December 2020. This was on the back of the surging local housing market prices. Experts believe this may affect how lenders feel about commercial real estate loans and affect Taiwan’s economy.
Taipei’s average office vacancy is expected to remain below 4%. Meanwhile, some occupants are likely to remain cautious and choose lease renewals amid a lack of relocation options. This means that office building landlords are in a favorable position in 2021.
As retailers resume their expansion plans, most retail property prices are expected to increase. This was after total retail sales in Taiwan went up by 0.2% year-over-year in 2020, despite the pandemic.