Taiwan: Growth stays strong as normalization begins – DBS

DBS Group Research economist Ma Tieying notes Taiwan’s 2Q GDP growth slowed to 12.9% year-on-year from 14.5% in 1Q, but remained solid on a quarterly basis. The report highlights narrowing divergence between exports and domestic demand, upside risks to 2026–2027 growth forecasts, expectations for a central bank rate hike, and ongoing pressures in Taiwan’s equities, currency and bond markets.

GDP, rates and market pressures

"According to the preliminary estimate, GDP growth slowed to 12.9% yoy in 2Q, from the 1Q peak of 14.5%. On a QoQ saar basis, growth remained solid at 9.9%, compared with 6.9% in 1Q."

"As a result, net exports contributed 5.8ppt to headline GDP growth, while domestic demand contributed 7.1ppt. This marked the first time in five quarters that domestic demand made a larger contribution than net exports."

"We see some upside risks to our 2026 and 2027 GDP growth forecasts of 9.4% and 4.5%, respectively, although we are maintaining them for now. We continue to expect AI-driven super growth to transition toward a more normalized pace from 2H26 through 2027."

"The GDP data, both in terms of growth momentum and composition, should provide sufficient confidence for the central bank to hike rates in 2H26. CPI inflation is expected to remain in the 2-2.5% yoy range through 2H26, driven by a rebound in oil prices amid renewed Middle East tensions and volatile food prices under El Niño conditions. We continue to expect a 12.5bp rate hike in 4Q, bringing the policy discount rate to 2.125%."

"In financial markets, pressures from the stock market correction, capital outflows, and tighter liquidity conditions remain. The TAIEX has declined 10% from its late-June peak, driven by the global semiconductor stock sell-off and, in particular, heightened volatility in the KOSPI. Foreign net selling of the TAIEX reached USD23bn in July."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)