While the trade-dependent economy has recovered from a brief recession in late 2015, its fortunes could deteriorate again on trade frictions, especially between the United States and China, its two largest trading partners.
The withdrawal of the United States from a broad trans-Pacific trade pact could have wider implications for Asian exporters such as Taiwan.
"The impact and subsequent measures by the United States' protectionist policy of backing out of the Trans-Pacific Partnership will be watched," Jack Huang, an official with the Directorate General of Budget, Accounting and Statistics told a news conference on Wednesday.
Gross domestic product expanded 2.58% in the October-December quarter from a year earlier, up from 2.03% in the prior quarter, but was slower than 3.1% forecast in a Reuters poll.
Momentum showed signs of cooling, with the economy growing at half the pace of the previous quarter, by a seasonally adjusted annualised 1.89%.
The economy managed to grow 1.4% in 2016, faster than 0.72% the previous year, helped by strong exports at the year-end, but this looks unlikely to be sustained due to global uncertainties and weak growth in Taiwan's key export markets.
Taiwanese manufacturers produce a vast array of hi-tech goods that are a key engine of growth for the economy. Exports grew in the final quarter of last year, while export orders and industrial output have both been positive since August.
Domestic demand was driven in the fourth quarter by capital formation primarily from investments in the semiconductor sector, but private and government consumption remained weak, the data showed.
Taiwan President Tsai Ing-wen, however, has vowed to restructure the economy and use proactive fiscal policy to expand infrastructure investment to raise domestic demand.
"There is some space for the government to provide some investment and consumption," said Emily Dabbs, economist with Moody's Analytics in Australia.
She noted that while manufacturing activity and hiring improved in the fourth quarter, the gains didn't translate to better wages nor consumer spending, which may indicate businesses are not yet confident about their outlook.
Capital Economics senior Asia economist Gareth Leather expects growth to slow over the coming quarters.
"The election of Donald Trump represents an additional downside risk to the export outlook," he said.
Taiwan's long-term economic planner, the National Development Council, has estimated GDP to average 2.5% to 3% between 2017-2020. - Reuters