Taiwan raises 2026 GDP growth outlook to 16-year high on strong AI demand

* Sees 2026 exports growing at fastest pace in 5 decades

* Taiwan cbank seen leaving interest rate steady this year -analyst (Adds official comment in paragraph 6, analyst quote in paragraph 8, details)

By Faith Hung and Jeanny Kao

TAIPEI, May 29 (Reuters) - Taiwan's tech-driven economy is expected to grow at its fastest pace in 16 years in 2026, the government statistics agency said on Friday, thanks to booming demand for artificial intelligence-related technologies.

Gross domestic product is now expected to be 9.64% higher than a year earlier, the agency said, the quickest pace since 10.25% was recorded in 2010 and revising up the 7.71% forecast it issued in February.

The island plays an essential role in the global AI supply chain for companies like Nvidia (NVDA) and Apple (AAPL), led by the world's largest contract chipmaker, Taiwan Semiconductor Manufacturing Co. (TSM)

Strong demand for AI drove Taiwan's economy in 2025 to expand 8.76%, the agency added, its fastest pace in 15 years.

The agency also revised up its first-quarter 2026 economic growth view to 14.55%, marking its fastest quarterly pace in nearly 48 years, versus a preliminary reading of 13.69%.

"Demand for AI, high-performance computing and cloud infrastructure exceeded expectations," it said in a statement. "(Cloud service providers) raised their capex expenditure."

The strong economic growth has reinforced the view that Taiwan's central bank will leave interest rates unchanged through this year, analysts said.

"There is no inflation pressure ... the central bank does not need to use its monetary policy," said Kevin Wang, an analyst at Masterlink Investment Advisory. "Raising or cutting interest rates will not happen this year."

The central bank is scheduled to hold its next quarterly rate-setting meeting on June 18.

The statistics agency expects 2026 exports to rise 39.77% from a year earlier, its fastest growth in five decades, compared with a previous forecast of 22.22%.

It also expects the 2026 consumer price index to be at 1.93%, which would be below the central bank's 2% target but slightly higher than the 1.68% forecast issued previously.

(Reporting by Faith Hung and Jeanny Kao; Additional reporting by Roger Tung; Editing by Tomasz Janowski and Thomas Derpinghaus)