Confidence level of consumers rebounds after a 9-month downturn
Taiwan's Economic Outlook for 2025 Remains Cautiously Optimistic
Taiwan's economy is showing signs of strength, with GDP growth forecast around 3.02% to 3.05% for the year. This growth is primarily driven by strong export demand, especially in the technology sector and AI-related products. However, growth is expected to slow significantly in the second half of the year due to the lingering impact of US tariff policies enacted during the Trump administration and a fading front-loaded export surge from early 2025.
In the first half of the year, Taiwan saw unusually strong GDP growth, with Q2 growth around 5.7% YoY. This surge was due to foreign buyers accelerating orders to avoid tariffs and booming demand for semiconductors and AI-related technologies. The technology sector, especially Taiwan Semiconductor Manufacturing Co. (TSMC), has been a critical driver of Taiwan's export growth.
However, growth is expected to slow to about 1% or less in the second half of 2025. Economists remain concerned that continued tariff threats could dampen earnings, capital expenditure, and consumer confidence moving forward. Some see the tech sector’s resilience limiting severe damage if tariffs are restricted mainly to chips.
The business climate monitor, which reflects the sentiment of Taiwanese businesses, dropped two points in the latest report, reaching a one-and-a-half-year low. The decline is due to decreased overtime hours and revenue in the wholesale, retail, and food service sectors. The National Development Council attributes the dip primarily to delayed deliveries of imported passenger cars.
The Taiwan consumer confidence index (CCI) for this month is 64.38, a 0.68 point increase. The rise in the CCI is mainly due to a 5.15 point increase in sentiment toward stock investment. However, confidence in the economic outlook fell to 80.65, its lowest since May 2023.
Deputy Director Chen Mei-chu of the Department of Economic Development states that the absence of clear notice regarding Taiwan's treatment under the upcoming US tariffs has caused businesses to adopt a more cautious approach. Ongoing uncertainty over the US' "reciprocal" tariffs on Taiwan could dampen hiring expectations, according to Dachrahn Wu, head of the Taiwan Economic Development Research Center at National Central University.
Non-tech sectors and traditional industries in Taiwan saw weaker shipment momentum. If the tariff rate exceeds 20 percent, there may be an uptick in unpaid leave, layoffs, and unemployment in Taiwan's machinery and tooling sectors.
Despite these challenges, the business monitor is expected to remain in the "green" territory for the second half of the year, barring any major external shocks. With Japan and the EU moving forward with agreements to reduce their tariffs with the US to 15 percent, "Taiwan's final rate becomes all the more critical," according to Chen. The rebound in overall consumer sentiment is fragile, with the employment subindex dropping to 70.53.
The business climate monitor's decline is due in part to delayed deliveries of imported passenger cars, which have affected the wholesale, retail, and food service sectors. However, Taiwan's economy is supported by robust export momentum fueled by advanced technology sectors, with TSMC playing a central role in sustaining this growth.
[1] Taiwan News, "Taiwan's GDP growth expected to slow in second half of 2025 due to US tariff policies," 2025-06-01. [2] Focus Taiwan, "Taiwan's GDP growth in Q2 expected to reach 5.7% YoY," 2025-06-15. [3] Reuters, "Taiwan economy expected to slow in second half of 2025 due to tariff risks," 2025-06-22. [4] CNA, "TSMC's 2-nanometer chip technology to boost Taiwan's exports," 2025-06-25.
Financial sectors and businesses in Taiwan are keeping a close eye on tariff policies, as their implementation could significantly impact the country's economy, with particular concern arising in the second half of 2025. The technology sector, specifically Taiwan Semiconductor Manufacturing Co. (TSMC), is a crucial support for Taiwan's robust export momentum in the advanced technology sectors.
