Taiwan Economy Booms on AI Demand as Industry Gap Widens

2026-08-02

Taiwan's economy remains buoyant, driven by demand for artificial intelligence (AI). Fourth-quarter gross domestic product (GDP), announced on July 31 by the Directorate-General of Budget, Accounting and Statistics under the Executive Yuan, rose 12.92% from a year earlier, maintaining growth reminiscent of the island's high-growth era. But the benefits are concentrated in high-tech industries, underscoring a K-shaped economy in which the gap in business conditions across sectors is widening.

Housing Market Ripple Effect Around TSMC

In Zhubei, about a 15-minute drive from Hsinchu Science Park, where Taiwan Semiconductor Manufacturing Co. (TSMC) is headquartered and related companies are clustered, supplies of luxury condominiums are increasing amid redevelopment. Properties priced at 150 million to 200 million yen per unit are scheduled for completion in 2031, and more than 100 units have already been contracted since sales began in May.

According to surveys by Cathay Construction and others, new-home prices in Zhubei rose 20% year on year in the April-June quarter of 2026, on a per-ping basis. The number of contracted sales also swelled about ninefold from a low level a year earlier.

Buyers are not limited to highly paid engineers. Demand from investors whose assets have increased on the stock market is also strong. At TSMC's annual general meeting held in Hsinchu in June, one male shareholder said he had made enough profit to recoup the down payment on a home loan. The Taiwan Weighted Index has risen about 89% since the end of 2024.

Exports Tilted Toward High Tech

High-tech industries such as semiconductors and servers, which are expanding on growing AI-related demand, are driving Taiwan's stock-market gains and economic growth. The bias is also evident in exports, a key contributor to GDP growth.

Trade statistics from the Ministry of Finance showed that exports in January-June 2026 rose 47.1% from a year earlier to $416.6 billion, or about 65.6 trillion yen. Information and communications products, including servers, and electronic parts, including semiconductors, accounted for a combined 78.7% of the total. That was about 8 percentage points higher than a year earlier and about 36 points higher than a decade ago.

Meanwhile, earnings conditions are tough in industries less able to benefit from the AI boom. In addition to higher raw-material costs, workers are moving to better-performing sectors, driving up labor costs and squeezing profits.

The purchasing managers' index (PMI) for the first half of 2026, compiled by the Chung-Hua Institution for Economic Research and others, showed that industries such as food and textiles and transport equipment were unable to fully pass higher procurement costs on to selling prices. Chen Hsin-hui, an associate research fellow, said that although cost increases were continuing, the pace of passing them on to prices was slower than in the first half, and analyzed that disparities among industries were widening.

Government Seeks to Narrow Disparities

Service industries are also finding it difficult to absorb higher costs. A man who runs a restaurant in Taipei said that although high-end restaurants are performing well, it is difficult to manage restaurants where the average customer bill is less than 10,000 yen. A labor shortage and rising labor costs are preventing earnings from growing as expected, he said.

Concern over this imbalance is growing. Taiwan's Legislative Yuan held a public hearing on July 30 focused on the K-shaped economy. Wang Chuan-hung of the General Chamber of Commerce said Taiwan's growth, fueled by AI demand, is supported by supply chains involving several thousand companies, and urged the government not to abandon industries less able to benefit.

The administration of Lai Ching-te has put in place measures to support small and midsize companies, including promoting the use of AI and encouraging wage increases. How broadly the fruits of growth can be distributed will be a key focus ahead.

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