On the back of a well-developed and resilient financial system, and sound external and fiscal balances, the short-term financing risk in Taiwan remains low. The fiscal balance is expected to stay around 0% of GDP in the near term until 2027, public debt should remain low at 24% of GDP in 2025, 21% in 2026 and 18% in 2027, and the current account balance should stabilize around 15% of GDP during this period.

Taiwan exhibits robust external balances with a strong track record of more than 20 years of large current account surpluses – reflecting its strong position within the global value chain. The boost in demand for AI-related supply chain goods, despite ongoing trade and geopolitical tensions, will only fuel this trend going forward. Consequently, the economy’s current account balance should register a surplus of around 15% of GDP in 2025 and 2026. Further, we expect gross external debt to remain low, around 25% of GDP in the near-term. However, the economy’s strong dependence on external trade makes it vulnerable to challenges in the external environment. Worsening geopolitical risks, US trade policy and rising cross-strait tensions are also softening inbound foreign investment flows from multinational firms. 

Taiwan has a solid business environment with well-developed physical infrastructure, an educated workforce and business-friendly policies. The Heritage Foundation’s annual Index of Economic Freedom surveys have put Taiwan in the top 10 out of 185 economies in recent years (rank 4 in 2025), reflecting very strong scores with regards to judicial effectiveness, fiscal health, government spending, trade, business and monetary freedom, property rights and tax burden. Indicators that have the potential to improve further include those related to financial, labor and investment freedom and government integrity (the latter having slightly deteriorated). Likewise, the World Bank Institute’s annual Worldwide Governance Indicators 2024 survey suggests that the regulatory and legal frameworks are business-friendly with a low level of corruption. On the downside, Taiwan ranks 193 out of 210 economies in our proprietary Environmental Sustainability Index, due to a relatively low energy use per GDP indicator and renewable energy output, while recycling rate and CO2 emissions stay moderate.

The 2024 presidential elections were won by Lai Ching-te of the Democratic Progressive Party (DPP) with a share of 40.05% of total votes, ahead of his opponent Hou Yu-ih from the opposition Kuomintang (KMT), who earned 33.49% of votes. By contrast, DPP lost the legislative elections, retaining 51 seats (10 fewer than previously), while opposition parties KMT won 52 seats and Taiwan People’s Party (TPP) won eight seats. Since then, legislative hostilities between the ruling DPP and opposition parties have led to a paralysis of the Constitutional Court, impediments to President Lai’s policymaking and a decline in his approval ratings. Besides implications on domestic politics and institutions, the split parliament should result in a broad containment in cross strait tensions in the near term, as the DPP’s China skeptical policy stance is constrained by the opposition’s push for a more conciliatory approach. Overall, uncertainties to the medium-term (geo-)political stability of Taiwan cannot be ruled out and will remain a function of the collaboration between the government and the opposition, and factors external to Taiwan.