Taiwan faces economic uncertainty as tensions with China are set to rise after DPP victory

Taiwan's economy faces uncertainty as tensions with China are likely to rise following the victory of the Democratic Progressive Party in the island's presidential elections, with analysts' views differing on the question of a slowdown.

Risk perceptions of the Taiwanese market are expected to strengthen even though a DPP victory was largely factored in, with the market's response hinging on China's reaction in the coming weeks and months, Amundi Asset Managment said in a note last week.

The firm warned: "If China were to impose a customs quarantine – banning major imports and exports and allowing only essential foods and fuels into the country – concerns about supplies and social unrest could arise. Such a scenario would likely lead to a depreciation of the Taiwan dollar and impact both the real estate and stock markets."

Alicia Garcia Herrero, Nataxis' chief economist for Asia Pacific, however, expects Taiwan to see faster growth in 2024, offering "tailwinds" to the DPP government, as mainland China remains Taiwan's biggest export destination despite tensions.

Amundi warned a possible temporary economic blockade of Taiwan could alarm the markets.

A more extreme scenario of a full blockade that prohibits all imports to Taiwan will trigger a regional "risk-off" event, severely impacting Asian stock and real estate markets and leading to foreign exchange shortages, it said.

A blockade "isn't out of the question," but "highly unlikely," Gabriel Wildau managing director at global business advisory firm Teneo said, adding that while the DPP's Lai Ching-te has had a history of pro-independence rhetoric, his presidential campaign was quite tempered.

China has dismissed the outcome of Taiwan's elections, saying the DPP does not