S&P Global Ratings has affirmed Taiwan’s sovereign credit rating with a stable outlook, saying that the nation might resume economic growth next year from an expected contraction this year caused by the COVID-19 pandemic.
The international agency maintains Taiwan’s long-term and short-term issuer credit ratings at “AA-” and “A-1+” respectively on belief that the nation’s robust asset positions, strong monetary flexibility and competitive private sector would uphold its credit profile amid the pandemic.
The affirmation came even though S&P Global said that Taiwan’s financial health would deteriorate modestly, owing to relief and stimulus measures.
The extra spending would not add much strain to government debt, the ratings agency said.
The pandemic could push Taiwan’s economy into a 1.2 percent decline with unemployment rising to 4.4 percent this year, it said.
Effective containment and mitigation, coupled with a strong healthcare system, has helped Taiwan avoid stringent lockdowns in many other parts of the region, allowing domestic economic activity to weather the storm better than its peers, S&P Global said.
Nevertheless, Taiwan’s open economy would be affected by softening external demand, a collapse in tourist arrivals and a dimming outlook for the semiconductor industry in the second half of this year, it said.
S&P Global said it expects the virus effects to be temporary, and as the crisis recedes, Taiwan would stage a strong economic recovery, led by its electronics manufacturing sector.
Taiwan’s semiconductor foundries have emerged unrivaled in making high-end integrated circuits, it said.
“Demand for advanced chips from 5G network deployment, big data processing, analytics and artificial intelligence will drive investment growth and economic activity,” S&P Global said.
Taiwan’s GDP would rebound 4 percent next year, it added.
The ratings agency looked at the marginal investment benefit from the relocation of some production chains by Taiwanese manufacturers to respond to mounting costs in China, US-China trade tensions and incentives from Taiwan’s government.
S&P Global said it might lower Taiwan’s credit ratings if its fiscal deficit widens structurally due to a failure to adjust to unfavorable demographics or external shocks, resulting in higher government debt.
Taiwan has one of the fastest-aging populations in Asia, which can limit long-term growth potential in the absence of productivity growth, the agency said.
Credit downgrades might also occur if cross-strait relations sour, resulting in heightened geopolitical risks and adverse effects on economic performance, S&P Global said.
For the time being, cross-strait and international trade relations remain conducive to Taiwan’s economic stability, it said.
STAYING AHEAD: Fitch said that TSMC remains technologically ahead of others, but Samsung is building a new chip fab, while China is investing in its domestic industry As escalating US-China tensions and COVID-19-related production disruptions force US technology supply chains to transform, Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) US$12 billion chip fabrication plant in Arizona would be key to spurring greater US production of core semiconductor components, Fitch Ratings said. “We view the US-TSMC alliance as a first step in building a more autonomous US technology supply chain, given high barriers to entry, specifically related to the significant capital and design capability required for leading-edge semiconductor manufacturing,” Fitch said in a statement on Tuesday. “By working with TSMC, US chipmakers will not face the financial burden of incremental investment
DIVERSIFICATION: Although COVID-19 would push more companies to produce in emerging markets, DBS said that it was unlikely that firms would totally leave China Geopolitical tensions and supply disruptions are expected to accelerate the migration of manufacturing out of China, as concerns about the risk of production concentrated in one country increase, S&P Global Ratings said. Although its economic expansion might be weaker than previous levels due to the accelerated relocation of manufacturing, China’s economic growth would still be stronger than that of most other economies, the ratings agency said. “While absolute growth rates will moderate, we believe China’s economic performance will continue to be a key sovereign credit support,” S&P Global Ratings credit analyst Tan Kim Eng (陳錦榮) said in a statement on Thursday. “Its growth
Taiwan’s corporate landscape has changed significantly over the past 20 years, with Hon Hai Precision Industry Co (鴻海精密) replacing Formosa Plastics Corp (台塑) as the revenue leader, while Taiwan Semiconductor Manufacturing Co. (TSMC, 台積電) has emerged as the most profitable firm, a survey of Taiwan’s 50 largest companies published on Tuesday last week showed. The Chinese-language CommonWealth Magazine survey ranked Taiwan’s 50 largest companies based on their revenue last year, and compared them with the results of a similar survey it conducted in 2000. Only 33 companies on the original list remained in this year’s rankings, the survey found, following two
Luxury hotel Mandarin Oriental Taipei (文華東方酒店) yesterday announced that it would suspend guestroom operations and lay off related staffers from Monday, as regional border controls and travel restrictions are unlikely to be lifted anytime soon. The partial shutdown would not affect the five-star hotel’s restaurants, bars, spa, and conference and banquet facilities, which this month have almost recovered to pre-pandemic levels, it said. “Mandarin Oriental Taipei will suspend all guestroom services from June 1 due to the impact of the COVID-19 pandemic,” the hotel said after four months of maintaining normal operations proved unsustainable. The change necessitates downsizing and the hotel is handling