S&P Global Ratings has cut its GDP forecast for Taiwan to 1.3 percent this year, from the 1.8 percent predicted three months earlier, to reflect continued pressure on the nation’s export-oriented economy from a slow and unstable recovery in global trade.
“Taiwan’s export performance remains weak due to the slow recovery of global demand,” said Raymond Hsu (許智清), a corporate credit analyst at Taiwan Ratings Corp (中華信評), the local arm of S&P.
Inventory replenishment, rather than robust demand, underpins the improving performances of the nation’s high-tech sector, Hsu said, adding that the pace of business pickup is modest and might not sustain.
Hsu said the agency does not see a significant growth driver on the horizon, due to a lack of exciting innovations.
A supply glut remains a concern even though crude oil and raw material prices have largely stabilized, he said.
The low comparison base last year would account for expected improvements in economic indicators in the second half, he said.
Given the poor economic environment, the agency expects corporations to face greater downside pressure on credit risk than financial institutions, fixed income funds and the structured finance sector for the rest of the year.
That is because the corporate sector is more susceptible to the unfavorable economic climate, with slow external demand and volatile commodity prices bound to constrain corporate revenues, the agency said.
Steel, cement and mineral suppliers are struggling due to slack demand and oversupply, while plastic and chemical product makers have recovered some momentum, Hsu said.
Financial institutions might not be able to escape the effects of the unstable global economy, as low interest rates would continue to weaken their profitability, Taiwan Ratings analyst Serene Hsieh (謝雅瑛) said.
She said conservative lending would slow operations for lenders in the second half, but added that this strategy helps to avert default risks.
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