Taiwan’s economy expanded at its fastest pace in more than two years, with the quick control of the Covid-19 pandemic and the benefits of U.S.-China competition combining to boost growth after a contraction earlier this year.

Gross domestic product expanded 3.3% in the third quarter from a year ago, its fastest increase since June 2018, the statistics bureau said Friday. That was higher than even the most bullish forecast in a survey of economists. The median estimate was for growth of 1.1%.

The government attributed the strong growth to a bigger-than-expected rise in exports, with a stimulus program also boosting private consumption, according to a statement.

Taiwan joins South Korea and China in quickly shaking off the Covid-19 downturn, even as many of its other trading partners are still contracting. That recovery has been underpinned by a variety of factors, including export growth, a stronger currency, the quick control of the virus, and a voucher-based domestic stimulus program. But the pandemic’s resurgence in many parts of the world and uncertain global demand for technology could upend the rebound.

“The fourth quarter will be a challenge,” said Tony Phoo, economist at Standard Chartered Bank in Taipei. “Will semiconductors and tech products still be capable of high growth? We’ll have to see whether the pandemic in the U.S. and Europe affects holiday consumption.”

Taiwan has reported just 553 reported cases and only seven deaths, and on Thursday reached 200 days without a local infection. It’s never had to enforce a lockdown, limiting the damage to domestic consumption.

Taiwan’s full-year growth could be 1.9%, according to Wu Pei-hsuan, a senior executive officer at the statistics department. However that forecast doesn’t take into account the second and third waves of Covid outbreaks seen in many countries around the world, Wu said at a briefing in Taipei. The government’s current official estimate is for GDP to expand 1.6%.

“Whether you’re looking at foreign trade or consumption, it’s all looking quite positive,” Anita Hsu, an economist with Masterlink Securities Investment Advisory in Taipei, said in an interview Monday. “Domestic consumption appears to have picked up significantly, and the stimulus and tourism vouchers should be sufficient to offset some of the lost consumption from foreign tourists.”

Local Demand

Government assistance has helped businesses and stimulated demand. Taiwan has spent more than NT$150 billion ($5.2 billion) on relief measures so far and the legislature approved a NT$210 billion relief budget last week.

With that help, domestic consumption rose 5.1% in the third quarter, the fastest pace since the government began releasing the data in 2011.

Markets have also remained positive: Taiwan’s main stock exchange has been trading near its record high, and the Taiwan dollar is one of the best performing Asian currencies so far this year against the greenback, strengthening more than 4%.

Taiwan has also benefited from conflict between the U.S. and China. Exports to China surged 22.3% in September, largely driven by demand from Huawei Technologies Co. prior to the U.S.-imposed ban on sales to the Chinese tech company taking effect in the middle of the month.

Taiwan Semiconductor Manufacturing Co. has been one of the biggest beneficiaries of the Huawei ban. The chipmaker, which accounts for 30% of the Taiwan Stock Exchange’s market capitalization, smashed estimates with a 36% y/y increase in net income in the third quarter.

Huawei aside, demand connected to Apple Inc.’s new iPhone 12, people buying devices to work or study from home, and the global 5G transition have also been a boon for TSMC and other Taiwanese hardware companies. Restructuring of regional supply chains away from China has also been driving investment in Taiwan.

Investment Inflow

“The long-term capital outflow trend has been completely reversed,” President Tsai Ing-wen said in her National Day address on October 10. “Many foreign companies and well-known multinational corporations are also increasing their investments in Taiwan.”

With tech exports expected to remain robust in the near future, sustaining domestic demand will be crucial to continuing the economic rebound.

“It’s highly unlikely that Taiwan will open up to foreign travelers before the end of this year,” Carl Liu, economist at KGI Securities Investment Advisory Co, said before the data was released. “For private consumption to increase, it will come down to spending by ordinary Taiwanese.”