Taiwan's economy is booming on the back of the AI boom, which is great news for the island's exporters and chipmakers — but it also means higher prices and the first interest rate hike in years.

• Morgan Stanley now expects Taiwan to grow 11.6% this year, up from 8.9%, which would be the fastest pace in 40 years.
• The AI boom is spreading beyond chip exports into factory building, services, and consumer spending at home.
• Exports jumped 44.7% in the first seven months, and export orders hit a record high on demand for chips and electronics.
• Companies are pouring money into new equipment and plants, making investment the economy's second-biggest growth engine.
• With inflation staying above the central bank's 2% comfort line, Morgan Stanley now expects a rate hike in the last quarter of this year, and another next year.

Outlook: Growth should stay strong into 2027, helped by a bigger government budget and another planned cash handout, but rising prices will likely force the central bank to keep rates higher for longer.