Moody’s Investors Service has maintained Taiwan’s credit rating at “Aa3” with a stable outlook as the nation maintains high income and wealth levels, as well as strength in its institutional framework, and fiscal and external positions.
The ratings agency on Tuesday said that it arrived at the conclusion with awareness that Taiwan’s narrowly diversified economy is subject to persistent geopolitical tensions.
“We project economic growth to slow sharply to 0.2 percent this year amid the global coronavirus outbreak,” given the deep participation of Taiwan’s manufacturing sector in global technology supply chains, Moody’s analyst Michael Higgins said in a statement.
Nevertheless, Moody’s expects the nation to recover swiftly with growth of about 3.7 percent next year, aided by continued reshoring of investment by Taiwanese companies overseas and a recovery in demand for high-quality electronics exports, Higgins said.
Beyond immediate obstacles, Taiwan’s high degree of trade openness, links to the global electronics supply chain and strong trade ties with China have left it vulnerable to the outcome of trade tensions between China and the US, which are likely to worsen with the COVID-19 pandemic, Moody’s said.
However, there are also signs that Taiwan is benefiting from trade diversion, given its export similarities with China, high competitiveness, technological prowess and skilled labor pool, it said.
The government is likely to continue pursuing policies to bolster international competitiveness, it said.
Moody’s said it might upgrade Taiwan’s rating if economic reforms materially boost growth potential and offset the long-term drag from its aging population.
Improvements in its relationship with China would lead to a more positive outlook for Taiwan’s economy, it added.
However, Moody’s might downgrade the rating if relations with China deteriorate to such a degree that they affect Taiwan’s economic fundamentals, it said.
Rating downgrades would also happen if economic growth undergoes a material and persistent shock that results in erosion of economic resilience, such as from worsening global trade and investment, or an intensification of the US-China trade dispute, it said.
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