Moody’s Investors Service has maintained its “Aa3” credit rating for Taiwan with a stable outlook on the back of high per capita income and economic stability, but said the nation’s economy is losing steam.
The “Aa3” rating indicates the nation has a high-quality credit profile with very low credit risk, three notches away from the highest “Aaa” grade, the ratings agency said in a report.
Moody’s attributed its latest rating decision to the nation’s high per capita income, moderate levels of government debt and a track record of government policies that have fostered economic stability and competitiveness.
The nation’s real GDP growth averaged 3.5 percent between 2006 and last year, with nominal GDP hovering at about US$523 billion, almost double the median for the “Aaa” sovereign rating, the report said.
Despite a slowdown in exports, the nation’s balance of payments remains strong, Moody’s said, adding that a strong current-account surplus has helped shelter the nation from external shocks and built a net international investment position twice the size of GDP last year.
The nation’s foreign-exchange reserves have climbed to US$426 billion, more than double the nation’s external debt of US$159 billion, the report said.
Government debt stands at 39 percent of GDP, giving authorities comfortable room for fiscal maneuvering, Moody’s said.
However, the fiscal leeway might taper off as the debt level increasingly approaches the legal ceiling of 50 percent, the agency said.
That scenario looms as listless GDP growth is set to widen budget deficits and drive up debt, it said.
“There are signs Taiwan’s economic strength is eroding given soft real growth last year as weakening exports and investment largely offset support from consumption,” Moody’s said.
Looking ahead, neither cyclical nor structural factors bode well for the nation, the agency said, adding that it expects the economy to grow only 0.5 percent this year and 1.5 percent next year, constrained by sustained lackluster external demand amid rising economic uncertainty.
That forecast is the bleakest so far, lower even than Academia Sinica’s 0.52 percent growth forecast and the Directorate-General of Budget, Accounting and Statistics’ 1.06 percent forecast in May.
China’s economic rebalancing is hurting the Taiwanese economy the most due to its longstanding dependence on the market as an export destination and manufacturing base, the report said.
The government is aiming to diversify trade and investment destinations toward a wider range of economies in the Asia-Pacific region, but has yet to announce the details of the new strategy, the agency said, adding that the relationship between Taiwan and China could affect the effectiveness of the measures.
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