Taiwan's economy experienced a significant surge last year, expanding at an impressive 8.6% annual rate, marking its fastest growth in 15 years and the strongest since 2010. This robust economic performance, which exceeded economists' forecasts, was primarily fueled by its export-focused industries, particularly benefiting from the global frenzy surrounding artificial intelligence (AI) and a substantial increase in shipments to the United States.

A key factor contributing to this growth was a trade deal established earlier this month between Taiwan and the U.S. administration. This agreement saw the U.S. lower tariffs on imports from Taiwan to 15% from 20%, in exchange for Taiwan's pledges of at least $250 billion in investments in the U.S. across sectors like semiconductors and AI. Economists predict that this deal could further boost Taiwan's exports, thereby energizing its economy even more in the current year.

Experts from Bank of America, Xiaoqing Pi and Helen Qiao, anticipate that AI-related demand will continue to underpin Taiwan's export performance into 2026, sustaining overall economic growth amidst ongoing global investments in AI. Taiwan plays a crucial role as a major manufacturer of AI servers, computer chips, and precision instruments. Last year, its exports soared by nearly 35% compared to the previous year, predominantly driven by technology-related shipments. Notably, shipments to the U.S. alone surged by 78%.

The burgeoning AI boom has also propelled Taiwan's leading technology companies to achieve record profits and revenues. Among these giants are TSMC, the world's largest contract chipmaker and a key client for Nvidia, which ranks as one of the largest companies globally by market value. Additionally, electronics powerhouse Foxconn, known for manufacturing AI servers for Nvidia and assembling products for Apple, has also seen immense success.

However, economists project a potential slowdown in growth for the current year due to building on an already high base. Deutsche Bank, for instance, estimates Taiwan's economy will grow by 4.8% in 2026. Several risks cloud the outlook, including growing concerns that the AI boom might be a bubble, especially given Taiwan's significant dependence on tech exports. Uncertainty surrounding U.S. tariffs under future administrations and geopolitical tensions with Beijing also pose considerable worries. China, claiming self-ruled Taiwan as its territory, conducted large-scale military drills around the island in late December, renewing concerns over a potential blockade or seizure.