Taiwan’s economic growth next year could decelerate to 2.4 percent from an estimated 2.7 percent this year, as companies that feed into China’s global supply chain feel the chilling effect of US-China tariff hikes, Fitch Ratings said on Tuesday.
The nation’s growth momentum looks set to lose some steam as the external environment turns less favorable and global growth becomes less balanced and synchronized, the international ratings agency said in a report.
Taiwan is potentially one of the most exposed economies to escalating US-China trade tensions, because more than 40 percent of its exports go to China and Hong Kong, Fitch said.
The agency acknowledged that US tariffs on US$250 billion of imports from China have yet to target major consumer electronics and such tariffs could create trade diversion opportunities for Taiwanese firms.
“Nevertheless, the net impact will be negative in light of Taiwan’s role as a major supplier of intermediate goods and its significant trade flows with China,” Fitch said in the report.
A more harmful downside risk to the growth outlook could materialize should US-China trade tensions escalate to a stage that leads to the imposition of US tariffs on all imports from China — estimated at US$280 billion, it said.
This would have a direct spillover on Taiwan’s semiconductor industry and other producers that feed into the global consumer electronics supply chain, Fitch said.
Moody’s Investors Service voiced similar concerns, saying that a prolonged US-China trade dispute and rising geopolitical tensions are now more likely.
“We expect further US-China trade and investment restrictions this year and beyond and trade disputes will create headwinds for global growth,” Moody’s said in a separate report yesterday.
Moody’s said its baseline scenario assumes a manageable impact on global growth and inflation, but a large hit to investment or financial markets would have the potential to derail the global economy.
Concrete sector and regional impacts are likely, including unintended consequences for domestic supply chains, it said, adding that industries that use more expensive imported inputs would be hurt.
Moving production chains would be costly and rising uncertainty would affect investment, it said.
The disruption would be higher in Asia than elsewhere given the region’s integration in global supply chains, Moody’s projected.
Still, Fitch kept Taiwan’s long-term foreign-currency issuer default rating unchanged at “AA-” with a stable outlook.
The affirmation reflects the nation’s robust external finances, strong macroeconomic policy framework, competitive business environment and high governance standards, Fitch said.
External finances are among the strongest across rated sovereigns and are unlikely to be impaired by the ongoing US-China trade conflict, Fitch said.
Taiwan has run a current-
account surplus for more than 30 years and is a large net external creditor, it said.
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