TAIPEI (Taiwan News) — Academia Sinica has sharply raised its forecast for Taiwan’s 2025 economic growth to 7.41%, citing surging AI-driven demand in a projection that tops estimates from other major domestic forecasting agencies.

The Institute of Economics at Academia Sinica announced Monday it revised its 2025 growth forecast upward from a previous estimate of 2.93% to 7.41%. The institute said the stronger-than-expected outlook is largely fueled by rapid development in AI-related industries, though it warned that growing polarization could pose challenges for small and medium-sized enterprises, per CNA.

The institute identified five major sources of uncertainty facing Taiwan’s economy: US monetary and trade policies, China’s economic recovery, geopolitical risks and supply chain restructuring, the development of AI and emerging technologies, and domestic labor and capital allocation.

Lin Chang-ching (林常青), a research fellow at the Institute of Economics, said that while US tariff policies remain unclear, Taiwan’s external demand remains strong due to robust demand for AI and high-performance computing applications. This has boosted investment and contributed to solid economic data, he said.

Looking ahead to 2026, Lin said global trade would continue to feel the lingering effects of US tariff policies. However, expansion in AI-related industries is expected to support Taiwan’s external demand and investment, even as a higher comparison base moderates overall growth momentum.

Lin cautioned that uneven industrial development may not immediately affect gross domestic product but could undermine economic and social stability, particularly amid the possibility of increasing non-tariff trade barriers in the evolving international political and economic environment.

He urged the government to provide greater assistance to small and medium-sized enterprises. On tariff-related uncertainties, Lin said both the government and businesses hope to keep key industries based in Taiwan, adding that defining labor division with the US and other countries will remain a focus of ongoing negotiations.

Lin also said AI has been a major driver of Taiwan’s growth rate, raising questions about the sustainability of the current momentum. He said the trajectory of AI and emerging technologies is clear, with the key variable being the industry’s capacity to absorb these technologies, which he described as the effectiveness of “AI industrialization and industrial AI integration.” The pace of technology diffusion and investment cycles will also play a critical role in shaping future growth, he added.

Peng Hsin-kun (彭信坤), vice president of Academia Sinica, said this year’s economic growth rate is the strongest in 15 years. He noted that exports have been driven primarily by the semiconductor and information and communications technology sectors, while traditional industries continue to lag.

On prices, the Institute of Economics cited factors including declining international energy prices and appreciation of the local currency, forecasting consumer price index growth of 1.67% this year, and 1.6% next year.

The institute did not issue a direct exchange rate forecast but cited projections from international institutions that estimate the New Taiwan dollar-to-US dollar exchange rate at NT$29.64 in 2026.

Yang Shu-chun (楊淑珺), a researcher and acting deputy director of the Institute of Economics, said exchange rates are difficult to predict. However, she noted that expectations of US Federal Reserve interest rate cuts and Taiwan’s large trade surplus are creating upward pressure on the local currency, with future appreciation largely dependent on central bank intervention.