Bank of America (NYSE:BAC) (BofA) presented an analysis of Taiwan's economic landscape, emphasizing the nation's significant role in the global tech supply chain. As a major producer of semiconductors, Taiwan is responsible for over 60% of the world's supply and 90% of advanced chips, contributing 10% of the value-added in the global semiconductor supply chain.
The country's dominance in the tech sector is expected to drive economic growth in the short to medium term, with BofA forecasting a solid GDP growth of 3.7% in 2024.
The recent increase in exports, particularly since the second half of 2023, has been attributed to growing demand for artificial intelligence (AI). This surge is expected to continue to bolster Taiwan's export recovery and investment momentum. Despite these positive trends, BofA cautioned against the risks associated with Taiwan's lack of economic diversification.
The country's heavy reliance on the tech sector, particularly exports, which account for over 50% of the GDP, leaves it vulnerable to global trade downturns, onshoring trends, and geopolitical risks.
BofA identified three main constraints that could limit Taiwan's growth potential: a structural shortage of energy supply, a shrinking tech talent pool, and challenges in managing macro and financial stability due to large capital flows. These issues are exacerbated by the concentration of exports, with 60% being tech products and 35% destined for mainland China and Hong Kong.
While the Taiwanese government has implemented policies aimed at diversifying foreign direct investment (FDI) since the mid-2010s, BofA notes that these efforts have not fundamentally addressed the structural challenges facing the economy. The policies have not significantly promoted diversification or resilience.
BofA suggests that the government should take immediate action to address energy security and talent shortages to strengthen economic security.
To ensure sustainable growth over the long term, BofA recommends that Taiwan explore new opportunities by expanding its technological expertise into other high value-added industries such as semiconductor design, biotechnology, renewable energy, and intelligent machines, as well as service sectors like health care.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.