Mon, Dec 11, 2017 page15

• Taiwan’s outlook stable amid limited downside

  BENIGN GROWTH: A Standard & Poor’s economist said the nation’s growth was not based on debt buildup, reducing risk, and it could bear the planned infrastructure spending

  • By Crystal Hsu / Staff reporter
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  Stable economic improvement and abundant savings are expected to support Taiwan’s sovereign credit rating of “AA-” in the coming two years, Standard & Poor’s Global Ratings (S&P) said on Thursday, adding that the nation would not be affected by China’s sovereign credit downgrade.

  The US-based ratings agency in September cut China’s rating by one notch from “AA-” to “A+,” saying that the country’s debts have raised economic and financial risks.

  It also revised down Hong Kong’s credit rating, saying close political and economic ties between the territory and China warranted the adjustment.

  On Thursday, the IMF said that China’s mounting debt, estimated at 234 percent of its GDP, could increase financial risk and weigh on its economic growth.

  “An adjustment is not necessary for Taiwan due to its political detachment from China,” S&P’s Singapore-based credit analyst Tan Kim-eng (陳錦榮) told a media briefing in Taipei.

  SMALL SHARE

  Although China is the nation’s largest export destination, Taiwan has achieved better-than-expected GDP growth this year, thanks to strong exports that more than offset a sharp decline in the number of inbound Chinese tourists, Tan said.

  “The travel industry accounts for a small share of the [Taiwanese] economy,” Tan said, adding that he did not see evident downside risks that could weaken the nation’s credit profile.

  However, Ma Tieying (馬鐵英), a Singapore-based economist at DBS Bank Ltd (星展銀行), said Taiwan’s extensive dependence on the Chinese market posed a potential downside risk.

  FAIR LANDSCAPE

  In a research report released on Friday, Ma said that even though Taiwan’s exports to China rebounded this year, thanks to China’s inventory restocking and increase in fiscal spending, “the good fortune might not last in 2018, as the Chinese authorities have tightened financial regulations and pushed deleveraging after the [Chinese Communist Party’s 19th National] Congress.”

  DBS expects the economy to expand by 2.4 percent this year and 2.5 percent next year, Ma said.

  Overall, the global landscape looks fair ahead and the government’s special spending under the Forward-looking Infrastructure Development Program over the next four years can be sustained, Tan said.

  LIMITED UPSIDE

  Meanwhile, Taiwan’s household leverage is benign, indicating that economic improvement is not driven by loose lending, which would be questionable and unfavorable for the stability of the financial system, he said.

  “Consequently, the chance of credit downgrade is slim for Taiwan in the coming two years,” Tan said.

  On the other hand, the likelihood of upside surprises is also small due to a lack of major economic excitement on the horizon, Tan said.

  Taiwan’s GDP growth has been modest in recent years, he said.

  Additional reporting by staff writer
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