Taiwan, China flag Taiwan, China: Economic and Political Overview

The economic context of Taiwan, China

Economic Indicators

In 2020-2021, Taiwan bucked global trends by maintaining stable macroeconomic performance amid the Covid-19 pandemic: economic growth surged from an average of 2.8% yearly in 2016-2018 to 4.5% in 2019-2021, propelled by increased manufacturing production and exports, along with supportive monetary and fiscal policies, alongside rising investment rates. In 2023, however, the export-driven island nation experienced a slowdown due to sluggish global demand, with growth reaching only 0.8% supported by private consumption. The economy is anticipated to gradually rebound in 2024 (3%), on the back of external demand rather than domestic factors. The IMF outlook hinges on improvements in the global economy and the avoidance of escalation in geopolitical tensions with China.

Taiwan maintains a robust external financial position, characterized by significant current account surpluses averaging between 10% and 15% of GDP over the past decade. With foreign exchange reserves exceeding USD 565 billion as of June 2023—equivalent to more than 15 months of imports—the nation enjoys a strong buffer. Additionally, its moderate public debt (estimated at 26.6% of GDP in 2023, with an expected reduction to 23.3% this year) and minimal external debt signify low reliance on non-resident financing. The budget returned into positive territory in 2023 (+0.3% of GDP, from -1.7% one year earlier). The projected annual revenue for the 2024 central government general budget stands at TWD 2.709 billion, with annual expenditure set at TWD 2.881 billion. This marks a 5% increase in revenue and a 7.2% increase in expenditure compared to 2023. The budget is primarily allocated to three key sectors: social welfare, accounting for 27.5% of the total budget, national defence receiving 15%, and education, science, and culture allocated 19.5%. To counter escalating inflationary pressures in recent years, the central bank elevated its main policy rate from 1.125% in early 2022 to 1.875% by March 2023, marking the highest level since 2015. This resulted in a deceleration in the inflation rate to 2.5% last year, with a further decrease expected for 2024 (1.5%).

Due to substantial job growth in the services sector, the unemployment rate hit its lowest level in August 2023, matching figures not seen since January 2001, standing at 3.4% seasonally adjusted. The resilience of the job market, coupled with the planned minimum wage increase slated for January 2024 (+4.05% monthly and +3.9% hourly), will further bolster household spending. Despite maintaining a relatively moderate Gini coefficient compared to international standards, Taiwan has witnessed a concerning trend of increasing income inequality over the last three decades. Official data indicates that its Gini coefficient climbed from 0.291 in 1985 to 0.312 in 1991, and further to 0.342 by 2022.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 760.91756.59802.96854.68900.21
GDP (Constant Prices, Annual % Change) 2.61.43.12.72.5
GDP per Capita (USD) 32,61032,44434,43236,65038,602
General Government Balance (in % of GDP) -0.5-0.5-0.5-0.6-0.7
General Government Gross Debt (in % of GDP) 27.525.022.520.318.3
Inflation Rate (%) 2.92.51.91.61.5
Unemployment Rate (% of the Labour Force) 3.73.73.73.73.7
Current Account (billions USD) 100.8398.93111.59118.44135.14
Current Account (in % of GDP) 13.313.113.913.915.0

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

The agriculture sector contributes only very modestly to the GDP (around 2% according to figures from the official statistical agency) and employs about 5% of the labour force in Taiwan. Taiwan's natural resources are limited, the main crops being rice, sugar cane, fruits and vegetables. Rice cultivation remains a fundamental component of Taiwan's agricultural landscape, alongside the production of fruits like bananas, pineapples, and citrus fruits, as well as vegetables such as leafy greens and root vegetables. Livestock farming, particularly pork and poultry, also contributes significantly to the sector.

The secondary sector accounts for over 36% of GDP and employs about 35% of the labour force. The Taiwanese industrial sector encompasses a broad array of main sectors, including electronics, machinery, petrochemicals, and textiles. Renowned globally for its electronics industry, Taiwan is a leading producer of semiconductors, flat-panel displays, and consumer electronics. The machinery sector also plays a vital role, with Taiwan producing a diverse range of machinery and equipment for various industries. Petrochemicals form another cornerstone, with Taiwan hosting several petrochemical refineries and producing a wide range of chemical products. Additionally, the textile industry remains significant, with Taiwan known for its high-quality fabrics and garment manufacturing. Emerging sectors in Taiwan's industrial landscape include green energy technologies, biotechnology, and precision machinery, driven by innovation and government initiatives to foster advanced manufacturing capabilities. According to data from the Ministry of Economic Affairs (MOEA), Taiwan's industrial production index fell by 13.22% year-on-year to 85.68 in the initial 11 months of 2023, with the manufacturing sector's sub-index dropping by 13.65% to 85.13.

Services accounted for over 62% of GDP and employed nearly 70% of the labour force in 2022. The Taiwanese services sector encompasses a diverse range of main sectors, including finance, tourism, healthcare, and information technology (IT). Taiwan's financial sector is robust, with a well-developed banking system and a growing emphasis on fintech innovation. Tourism is also a significant contributor to the economy. The healthcare sector is also notable, with Taiwan known for its high-quality medical services and growing medical tourism industry. Information technology services, including software development, digital content creation, and e-commerce, are rapidly expanding, driven by Taiwan's expertise in technology and innovation.

 
 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
78,6/100
World Rank:
6
Regional Rank:
4

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
7.95/10
World Rank:
16/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

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Sources of General Economic Information

Ministries
Ministry of Finance
Ministry of Economic Affairs
Ministry of Agriculture
Statistical Office
National Statistics
Central Bank
Central Bank of the Republic of China
Stock Exchange
Taiwan stock exchange
Economic Portals
 

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Latest Update: June 2024