Fitch Ratings Ltd has lowered its forecast of the nation’s GDP growth for this year, citing disappointing export performance.
In its Taiwan Banks Report Card released on Thursday, Fitch said that the economy is short of a boost from its outbound sales and after taking the adversity caused by weak global demand into account, it was reducing its forecast from its previous estimate of 1.5 percent to 1 percent.
The forecast showed that the agency is more cautious about the economy than the government.
The Directorate-General of Budget, Accounting and Statistics last month raised its economic growth forecast for this year to 1.22 percent, up 0.16 percentage points from its previous estimate, due to improving exports and private consumption.
In the first eight months of this year, exports totaled US$180.1 billion, down 6.6 percent from a year earlier, but outbound sales for last month rose 1 percent year-on-year. It was the second consecutive month that an annual increase was recorded.
The Ministry of Finance earlier this month said that export growth momentum is expected to continue into this month due to the peak season for the global technology industry.
Exports account for about 60 percent of Taiwan’s GDP.
Fitch said the momentum of economic growth would pick up next year, with GDP likely to grow by 1.7 percent.
It said that Taiwan’s economic weakness and China’s slowdown are expected to have an adverse effect on the bottom line of the local banking sector, which has a large exposure to China.
The unfavorable economic circumstances are expected to take a toll on the quality of banks’ loans, it said.
According to central bank statistics, outstanding international claims by Taiwanese banks to China on a direct risk basis stood at about US$43.2 billion at the end of March, down US$6 billion, or 12.12 percent, from the end of December last year. China remains the banking sector’s second-largest debtor, the central bank’s data showed.
A narrowing interest rate spread and an increase in defaults caused by a weaker economy would reduce the banking sector’s profit this year and next, Fitch said.
Smaller private Taiwanese banks especially could feel a more obvious impact at a time when the local property market has been slow, Fitch said.
However, the outlook for Taiwanese banks’ ratings remains largely stable, since downside risks faced by the banks are generally manageable due to their enhanced and adequate risk buffers, modest leverage and healthy liquidity, Fitch said.
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