Fitch Ratings yesterday affirmed Taiwan’s sovereign credit rating at “AA” with a stable outlook in line with its strong external finances and fiscal prudence.
“Taiwan’s ‘AA’ rating reflects its exceptionally strong external finances, demonstrated fiscal prudence, high governance indicators and competitive business environment,” it said in a report.
The rating is constrained by Taiwan’s vulnerability to external demand shocks and abrupt shifts in global trade policy that could affect the technology sector, the pillar of exports, it said.
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Fitch said the presidential elections in January next year would be an important political milestone that could affect the trajectory of cross-strait relations, but it does not foresee tensions undermining Taiwan’s near-term economic and political stability.
However, the ratings agency said it expects Taiwanese manufacturing to continue reshoring and nearshoring away from China in pursuit of supply-chain resilience in the coming year.
Fitch said Taiwan’s GDP growth would slow to 1 percent this year, a sharp retreat from 2.4 percent last year, due to a broad-based slump in its main technology exports and subdued investment spending.
The slowdown has much to do with tepid end-market demand, a semiconductor downcycle in the post-COVID-19 pandemic era and heightening US trade restrictions against China, it said.
Private consumption would be robust and a key growth driver, supported by government stimulus measures, including direct cash handouts amounting to 0.6 percent of GDP and positive spillover from the post-pandemic border reopening, it said.
Fitch said GDP growth would accelerate to 2.8 percent next year on an upturn in the technology cycle, favorable for a gradual pickup of export momentum, and stronger capital spending by major semiconductor and high-tech manufacturers.
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