TAIPEI (Taiwan News) — Taiwan’s economy is projected to grow 4.05% this year as robust AI demand and easing tariff concerns brighten the outlook, the Taiwan Institute of Economic Research said Monday.

The 1.45 percentage point increase from its November estimate shows the outlook is turning “warm” at home and abroad, per CNA. Full-year consumer price growth is forecast at 1.66%, with prices expected to remain relatively stable in the first half of the year.

TIER Macroeconomic Forecasting Center Director Sun Ming-te (孫明德) said the upgrade was driven mainly by private consumption. A buoyant stock market has created a wealth effect, while car sales have rebounded, lifting the private consumption growth forecast to 2.5%.

TIER President Chang Chien-yi (張建一) said AI-related investment remains a key growth engine, pushing projected gross fixed capital formation to 3.05%. He added that lower tariffs of 15%, without stacking most-favored-nation rates, could also help revive investment by traditional industries.

On inflation, TIER said falling oil prices and stable service-sector costs have continued to moderate price pressures. However, risks from climate change, labor shortages, and geopolitical tensions could slow disinflation.

Sun cautioned that despite the improved outlook, global political and economic conditions remain volatile. He said uncertainty over US policy under President Donald Trump means Taiwan’s growth trajectory still warrants monitoring.

TIER’s December 2025 business climate indices showed improvement across manufacturing and service sectors, per Liberty Times. TIER researcher Liu Pei-chen (劉佩真) said new regulations on surplus construction material and credit controls could weigh on construction and real estate, leaving both sectors in a cautious phase over the next six months.