Investing.com — Taiwan, a small island nation with solely 23 million individuals, performs an outsized position within the world tech business and world financial system, as per analysts at BofA Securities in a word dated Wednesday.
“It produces over 60% of the world’s semiconductors and 90% of the advanced chips, contributing 10% of the value-added in the global semi supply chain,” the analysts stated.
This has bolstered Taiwan’s financial power, particularly as semiconductor demand has surged with the rise of synthetic intelligence (AI).
But, analysts at BofA warn that Taiwan’s heavy reliance on its tech sector introduces substantial dangers.
Taiwan’s tech sector has been a key driver of its financial development. Over the previous few years, Taiwan’s GDP development charges had been 3.4% in 2020, 6.6% in 2021, and a pair of.6% in 2022, largely fueled by semiconductor exports.
Even amid world financial volatility, Taiwan has sustained sturdy efficiency, helped by its tech exports. “We expect the AI-driven export recovery, along with better investment momentum, to help underpin solid GDP growth of 3.7% in 2024,” the analysts stated.
Nonetheless, this reliance on expertise brings with it important vulnerabilities. A big share of Taiwan’s financial exercise is linked to tech exports, which account for over 60% of its whole exports.
“Taiwan shipped as much as 35% of its exports to mainland China and Hong Kong in 2023, followed by the US (19%), ASEAN (18%) and Europe (10%),” the analysts stated. This heavy focus in commerce connections poses appreciable dangers, as geopolitical tensions or commerce disruptions might have severe penalties for Taiwan’s financial system.
Regardless of makes an attempt to diversify its commerce companions with initiatives such because the New Southbound Coverage, Taiwan continues to rely closely on the tech sector.
Whereas there was some progress in redirecting international direct funding from China to different areas, these efforts haven’t basically modified the inherent dangers in Taiwan’s financial construction.
Moreover, Taiwan faces a number of structural constraints that compound its vulnerability. Vitality safety is a urgent subject; practically 98% of Taiwan’s vitality is imported, with an enormous portion coming from fossil fuels.
Because the island strikes to section out nuclear energy, the stress on its vitality provide is anticipated to accentuate. The rising demand for electrical energy, pushed partially by the tech sector’s wants, exacerbates this problem, making vitality coverage reform a important space of focus.
The scarcity of expert tech professionals is one other main concern. Taiwan has been battling a expertise hole, with a big variety of unfulfilled positions within the semiconductor business. This subject is exacerbated by a declining youth inhabitants and fierce world competitors for tech expertise. Regardless of varied authorities initiatives geared toward addressing these shortages, the hole stays a big menace to the long-term sustainability of Taiwan’s tech sector.
Moreover, Taiwan’s macroeconomic stability is affected by massive capital flows linked to the worldwide tech cycle. These fluctuations make it troublesome for Taiwan’s central financial institution to handle financial stability, contributing to volatility in property markets and different areas.
The speedy motion of capital, pushed by tech cycles and geopolitical shifts, additional complicates Taiwan’s financial administration.
BofA analysts advocate that Taiwan pursue a number of strategic measures. Bettering vitality safety is important, and investigating new vitality applied sciences, together with superior nuclear choices, might assist alleviate provide constraints.
Tackling expertise shortages by way of enhanced instructional packages and initiatives to draw worldwide professionals can be essential.
Furthermore, Taiwan should speed up its efforts to diversify its financial system by investing in high-value industries corresponding to semiconductor design, biotechnology, renewable vitality, and clever machines.
Increasing the companies sector, particularly in areas like healthcare, might supply new avenues for development.
