Moody’s Investors Service expects a slowdown in Taiwan’s economy to extend from the first half of this year through the second half and into next year, while a ramp-up in government spending should support growth.
The international ratings agency reached the findings in its latest report on Taiwan’s credit profile, which maintained an “Aa3” rating with a stable outlook.
Taiwan’s credit profile balances its high income and wealth levels, strong governance indicators and external position against a narrowly diversified economy that is subject to sporadic geopolitical tensions, Moody’s said yesterday.
Weaker export growth would weigh as the technology cycle for smartphones and computers is in a slower expansion phase, said the agency, which first spotted the slowdown in the second half of last year.
Moody’s previously forecast that Taiwan would come out of the woods in the second half of this year, but the ongoing US-China trade dispute changed its views.
The nation’s high degree of trade openness, its linkages to the global electronics supply chain and the importance of China as its largest trade partner has rendered it the most exposed to US-China trade tensions and to declines in Chinese demand, the agency said.
The slowdown is now expected to continue and hit the economy next year as well, it said.
However, Taiwan also stands to benefit from trade diversions away from China because of similarities between bilateral exports, supported by Taiwan’s high levels of competitiveness, technological prowess and skilled labor pool, it said.
Taiwan has substantial ammunition to deal with any potential shocks, as fiscal deficits and the debt burden remain in line with peers, it said.
Double-digit current account surpluses, strong foreign exchange reserves and a very large net international investment position are additional buffers, it added.
Moody’s said it based its conclusions on Taiwan’s economic strength, institutional strength, fiscal strength and susceptibility to event risks.
The first three categories were graded as “strong” or “high,” while the final one was assigned a “moderate” rating, the agency said.
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