The credit profiles of the nation’s corporate and financial service sectors have remained largely sheltered from the surge in trade protectionism over the past few quarters, Taiwan Ratings Corp (中華信評) said last week.
Most rated Taiwanese entities are expected to maintain stable credit outlooks over the next 12 months on the back of sufficient capitalization, low debt leverage, satisfactory cashflow generation and other buffers, the Taipei-based subsidiary of S&P Global Ratings said.
However, further deterioration in the US-China trade relationship — especially if US President Donald Trump were to widen the scope of products included in Washington’s punitive tariffs — could weigh on Taiwanese enterprises’ bottom lines and credit profiles next year, on top of rising expenses to implement technological advances, Taiwan Ratings said.
“We believe that the risk of weakening global trade relations casts the greatest shadow over mostly stable credit outlooks in Taiwan,” Taiwan Ratings credit analyst Patty Wang (王珮齡) said in a statement on Thursday. “This threat adds to pre-existing credit risks, including volatile exchange rates, fluctuating commodity prices, and growing cybersecurity and technology disruption.”
Wang said the potential impact from rising trade tensions and weaker macroeconomic sentiment also weighs on the generally stable outlooks for local financial institutions.
“Banks in particular face a potential downturn in asset quality if trade disputes prolong and weaken corporate borrowers’ ability to repay their loans,” she said.
Meanwhile, foreign-exchange volatility poses a persistent constraint on returns in Taiwan’s life insurance sector, given the sector’s significant overseas investments, Taiwan Ratings said.
US-based S&P on Dec. 12 revised its GDP growth forecast for Taiwan for this year to 2.5 percent due to a slowdown in third-quarter GDP growth and weakening momentum in exports and private consumption.
The latest GDP growth forecast by S&P represented a downward revision from its earlier forecast of 2.8 percent in August and compared with the 2.66 percent growth estimated by the Directorate-General of Budget, Accounting and Statistics (DGBAS) on Nov. 30.
The ratings agency predicted that the economy would grow 2.6 percent next year, higher than the DGBAS’ forecast of 2.41 percent.
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