J.P. Morgan: Taiwan’s third-quarter growth beats expectations: AI investment takes over from exports as JPMorgan raises two-year growth forecasts

Why did third-quarter growth again beat expectations?

Taiwan’s preliminary estimate puts third-quarter 2026 GDP growth at 14.4% year over year, above the second quarter’s 12.9%, the market consensus of 12.0% and the Taiwan statistics agency’s August forecast of 11.4%; seasonally adjusted annualized quarter-on-quarter growth was 13.5%.
The upside surprise came mainly from capital formation and government consumption. Domestic demand grew 11.9% year over year and contributed 9.4 percentage points to year-over-year GDP growth, nearly twice net exports’ contribution of 4.9 percentage points.

Real capital formation rose 26.4% year over year in the third quarter, accelerating from 16.2% in the second quarter and contributing 6.3 percentage points to year-over-year GDP growth. Companies accelerated advanced-process upgrades, capacity expansion and AI infrastructure investment, while imports of capital and semiconductor equipment remained strong.
Export demand remained strong: nominal merchandise exports in US dollars rose 44.6% year over year in the third quarter, while imports of raw materials and capital equipment rose 46.3% and 47.6%, respectively. Imports rose as investment expanded, reducing net exports’ contribution to GDP growth from 10.6 percentage points in the first quarter to 5.6 in the second and 4.9 in the third.
The composition of growth consequently shifted toward domestic demand: its contribution was just 4.9 percentage points in the first quarter, below that of net exports, but rose to 9.4 percentage points in the third. JPMorgan says this shows that AI-driven growth momentum is spreading from exports to investment and, to a lesser extent, household demand.

Real private consumption rose 5.4% year over year in the third quarter, below the second quarter’s 5.9%, but still contributed 2.3 percentage points to GDP growth. Corporate profits, the stock market and the labor market supported household wealth and income, while a rebound in car purchases and new mobile phone launches also provided support.
Government consumption grew 6.4% year over year, above the second quarter’s 3.2%, contributing 0.8 percentage points. JPMorgan says investment remains the main driver of domestic demand expansion and overall domestic overheating is limited.

After the third-quarter data were released, JPMorgan raised its GDP growth forecasts for 2026 and 2027 by about 1 percentage point each, to 12.7% and 6.1%, respectively, and sees growth risks for 2027 as tilted to the upside.
The bank expects capital spending by major cloud providers, demand from AI customers, and TSMC’s investment in advanced processes and advanced packaging to continue supporting semiconductor output, AI server exports and local investment. It sees weaker industrial production in September as marginal normalization rather than a turning point in the broader AI cycle.
Fiscal expansion is another potential channel: several large budget and cash distribution proposals are still awaiting legislative approval. If implemented, they could pass some of the income gains from AI on to households and non-tech industries; the final size and timing remain subject to local politics and elections.