Taiwan's GDP growth for 2024 has been driven by strong domestic demand, although a larger-than-anticipated drag from net exports in the fourth quarter weighed on the overall reading, ING has reported. Despite this, the full-year performance aligned with consensus forecasts.

Economic growth slowed sharply in the fourth quarter, with GDP expanding by just 1.8% year-on-year (y/y), compared with 4.2% in the third quarter. This marked the weakest y/y growth since the third quarter of 2023 and fell short of market expectations. However, full-year growth remained resilient at 4.3% y/y - the fastest annual rate since the pandemic-disrupted 2021.

According to ING, the primary driver of Taiwan’s growth in 2024 was domestic demand, underpinned by exceptional growth in gross capital formation amid a semiconductor boom. Businesses significantly ramped up investments in machinery, construction, and intellectual property, contributing a substantial 2.97 percentage points (ppt) to the year’s total GDP growth of 4.3%.

Private consumption also played an important role, contributing 1.36ppt to GDP growth. Factors such as a positive wealth effect, steady wage increases, and a minimum wage hike also supported consumer spending. The TAIEX index climbed 28.4% during the year, while the Xinyi Realty Housing Price Index rose by 10.4% y/y. Meanwhile, Taiwan’s average regular earnings index recorded a 3% annual increase through November, and the minimum monthly wage was raised from NTD26,400 to NTD27,470 at the start of 2024, benefiting lower-income households with high consumption tendencies.

Net exports were a notable drag on growth in the final quarter, subtracting 3.5ppt. While exports remained robust, a surge in imports offset this progress. Taiwan’s reliance on tech exports to the US poses some risk, given the concentration in product categories and destinations. Nevertheless, as the global race in artificial intelligence accelerates, Taiwan’s exports are expected to benefit, with a more favourable base effect likely to support figures from the second quarter of 2025.

While the economy performed well in 2024, growth is projected to moderate this year, with GDP expected to rise by approximately 2.7% y/y. Leading indicators in the latter half of 2024 pointed to a slight softening of momentum, though this is not seen as a significant concern.

As such, Taiwan remains well-positioned as a key player in the global AI sector. Industrial production data for December highlighted exceptional growth in sectors such as Computers, Electronic & Optical Products (+58.8% y/y) and semiconductors (+37.5% y/y).

The outlook for private consumption remains positive, buoyed by a further minimum wage hike in 2025, and strong corporate earnings, which are likely to sustain wage growth. However, uncertainties surrounding the continued impact of a positive wealth effect from equity and housing markets linger, with both markets already near historical highs.

With inflation stabilising around the 2% target, Taiwan’s central bank is expected to maintain its current monetary policy stance. Policymakers are likely to keep rates on hold during their March meeting, as growth remains on track and economic conditions appear supportive.