Taipei: Taiwan's economic growth for 2025 was forecast at 7.25 percent on Tuesday by the Taiwan Research Institute (TRI), a sharp upward revision from its June estimate of 2.9 percent, though it also urged caution over economic conditions in 2026.

According to Focus Taiwan, the TRI noted that initial concerns about the impact of U.S. tariffs have been mitigated as Taiwan experienced a surge in rush orders during the suspension and negotiation period, aiming to circumvent these tariffs. This period also saw a significant demand for artificial intelligence (AI) technology, which propelled exports for AI servers and information and communications products to unprecedented levels.

The TRI observed that profit gains in AI-related industries have stimulated domestic investment, creating a cycle of growth fueled by both exports and investment. While this growth trajectory is anticipated to persist into 2026, the think tank forecasts a more modest growth of 3.46 percent for that year.

However, Taiwan's economy remains vulnerable due to its reliance on specific industries and markets. The TRI highlighted risks such as a potential global economic slowdown, a cooling of the AI boom, and intensified geopolitical tensions, which are interrelated factors that could impact the economic landscape. Additionally, the long-term effects of U.S. tariffs are expected to continue influencing Taiwan's economic outlook.

Despite these challenges, the TRI maintains a positive outlook for global demand for AI and high-performance computing. Yet, it cautions that growth might be constrained due to the high base set in 2025. On the domestic front, consumption momentum, driven by universal cash handouts, is projected to persist into the first quarter of 2026. Furthermore, robust profit expectations at AI-related firms are likely to enhance wages and dividends, thereby increasing household disposable income and sustaining consumption throughout the year. The TRI predicts a domestic growth rate of 2.23 percent, marking an improvement from the current year.