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

The economic context of Taiwan, China

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Taiwan was facing a relatively low economic growth at 3% back in 2019 due to lower demand from trade partners and  trade tensions between China and the United States. In the context of the COVID-19 pandemic, the country registered a 3.1% GDP growth in 2020, one of the best results in the world, and 5.9% in 2021 (IMF, October 2021). Taiwan enjoys a good financial position, is the 4th electronic producer in the world and support R&D. According to the latest IMF forecasts, growth is expected to return  to 3.3% in 2022, subject to the post-pandemic global economy recovery.

According to the latest IMF estimates, public debt closed at 27.2% of GDP in 2021 and is expected to decrease in 2022 and 2022 with 22.8% and 18.2% respectively. The budget was in deficit at -1.9% in 2019 and increased due to the COVID-19 pandemic to -3.2% in 2020 but came back to +0.3% in 2021. It is expected to increase in the following years to 1.4% in 2022 and 2% in 2023. Inflation remained low at 1.6% in 2021. It should stay at this level with 1.5% and 1.4% in 2022 and 2023 (IMF, October 2021). Taiwan industries are affected by the international trade tensions, which include electronics (40% of Taiwan's exports), machinery, and chemicals. Chinese restrictions on travel from mainland China to Taiwan have also affected this sector. Other economic challenges include massive relocations that weaken industrial employment, uncompetitive service sector, insufficient infrastructure, and diplomatic isolation. Nevertheless, growth will be aided by infrastructure spending in healthcare and energy. The Infrastructure Development Plan will also modernise the rail network and water distribution. While budget deficits are expected, taxes were increase on income and financial transactions. Most public debt is domestic and owed in New Taiwanese dollars.

In 2022, the country’s most immediate challenge remains related to the economic, social and public health impacts of the COVID-19 pandemic, even though Taiwan had the pandemic well in hand from the start thanks to early and effective prevention. The government’s approach to the COVID-19 pandemic was among the world’s most successful. Avoiding any abusive restrictions, officials focused on contact tracing and quarantines for overseas travelers, and provided accurate and timely information to the public. Despite an surge in COVID-19 in 2021, growth was resilient, mainly thanks to its export-oriented manufacturing sector, as global demand, especially for electronics, was accelerating. The unemployment rate remained steady at 3.8%, virtually unchanged compared to 2020 and 2019 (3.9% and 3.7% respectively) and it is expected to remain at this level (3.6%) in 2022 and 2023 (IMF, October 2021). Social challenges include an ageing population, low birth rates, and a tense political agenda focusing on reunification with mainland China.

 
Main Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 669.25774.73828.66858.97901.62
GDP (Constant Prices, Annual % Change) 3.46.63.32.82.1
GDP per Capita (USD) 2833353638
General Government Balance (in % of GDP) -2.7-0.7-0.5-0.5-0.5
General Government Gross Debt (in % of GDP) 32.628.424.122.120.2
Inflation Rate (%) -0.22.03.12.21.4
Unemployment Rate (% of the Labour Force) 3.94.03.63.63.6
Current Account (billions USD) 94.80114.68122.64109.09103.72
Current Account (in % of GDP) 14.214.814.812.711.5

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

The agriculture sector contributes only very modestly to the GDP (around 2% in 2021 according to figures from the official statistical agency) and employs about 5% of the labour force in Taiwan. Taiwan's main crops are rice, sugar cane, fruits and vegetables. Taiwan's natural resources are limited. The Ministry of Labor allows dairy farms to hire migrant workers to compensate for labor shortages since 2019.

The secondary sector accounts for over 36% of GDP and employs about 35% of the labour force. Although traditional industries such as iron and steel, chemicals and machinery account for almost half of industrial production, new industries are the more dynamic. Taiwan is one of the world's largest suppliers of semiconductors, computers and mobile phones. It is also the largest supplier of computer screens.

Services accounted for 62.7% of GDP and employed 59.7% of the labour force in 2021. Taiwan, which faces the continued relocation of large labour-intensive industries to countries where it is less costly, will need innovative changes to move to an economy based on more advanced technologies and services to support them. According to Taiwan's tourism bureau, the number of foreign visitors to Taiwan in 2019 hit a record 11.84 million, a 7% increase from the previous year, and since then the country is waiting for the world's borders to open again to international travel.

The COVID-19 pandemic has had a powerful impact on the global economy since 2020. Nevertheless, the global recovery continues, even if the momentum has weakened towards the end of 2021 and uncertainty has increased as the pandemic resurged, leaving lasting imprints on medium-term performance. The surge in global inflation has investors fretting about future growth, but many economists say price surges will subside, making way for 4.7% global GDP growth in 2022 (International Monetary Fund - IMF, 2022 & Morgan Stanley, 2021). The impact of the pandemic appears to have affected both sides of most sectors and markets in Taiwan for the second year in a row - demand disruptions having run up against supply problems - making the short-term outlook uncertain for agriculture, industry and service sectors.

 
 

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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
Council 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: November 2022