Citi: Taiwan’s third-quarter growth beats expectations again as widening AI investment drives forecast upgrade

What drove the third-quarter growth surprise?

Taiwan’s preliminary third-quarter GDP rose 14.4% year over year in 2026, exceeding Citi’s previous forecast of 13.4%, the Reuters poll consensus of 12% and Taiwan’s Directorate-General of Budget, Accounting and Statistics’ August forecast of 11.4%. Seasonally adjusted growth was 13.5% on an annualized quarter-on-quarter basis.
Investment was the largest driver: capital formation rose 26.4% year over year, contributing 6.3 percentage points to GDP growth. Net exports contributed 4.9 percentage points, and private consumption contributed 2.3 percentage points.
Real exports rose 21.1% year over year, but imports also rose 20.1%, reflecting the boost to imports from purchases of AI-related components and capital equipment and higher commodity costs.

Citi believes demand has spread from foundry services and advanced packaging to networking equipment, servers, cooling, power infrastructure and supporting manufacturing industries. By its calculations, technology exports rose 71.1% year over year in September, while non-technology exports also rose 33.3%.
Companies accelerated investment in advanced processes, AI infrastructure and capacity expansion. Capital equipment imports rose 58.5% year over year in the third quarter, including a 35.7% increase in semiconductor equipment imports; machinery, transport equipment, intellectual property products and construction activity also strengthened.
Based on Citi’s bottom-up analysis of companies it covers, capital expenditure is expected to rise by about 40% year over year in 2026 and by another approximately 16% in 2027. The bank’s investment indicators show that funds continue to be directed mainly toward AI and advanced-process capacity.

Citi expects Taiwan’s GDP to grow 9.9% year over year in the fourth quarter of 2026, down from 14.4% in the third quarter. It raised its full-year growth forecast to 13.0% and forecasts 9.6% for 2027. The bank expects growth to moderate naturally because of the high base, but sees support from order backlogs, advanced semiconductor manufacturing and Taiwan’s position in the AI hardware supply chain.
Private consumption rose 5.4% year over year in the third quarter, supported by household income, employment and financial market performance. Citi expects moderate wage growth and the stock market wealth effect to make consumption a more sustained source of growth in 2027; however, third-quarter consumption growth was already below the second quarter’s 5.9%.

Recent year-over-year increases in both headline and core CPI exceeded 2%, with price pressures concentrated more in services such as dining, rent, transport and entertainment. Citi expects headline CPI to remain around or above 2% through the first quarter of 2027; an increase in residential electricity tariffs in March 2027 would add to inflation risks.
The expansion of the AI industry is also raising financing demand: companies need funding for investment, working capital, inventories and accounts receivable. Citi acknowledges localized funding tightness and rising borrowing costs, but considers this more a matter of credit allocation than an overall liquidity shortage.
Citi maintains its rate-hike forecast: Taiwan’s central bank will raise rates by 12.5 basis points in each of December 2026, June 2027 and December, taking the policy rate to 2.375% by the end of 2027. The hikes could come earlier if global central banks remain hawkish or local inflation proves more persistent.