Fitch Ratings yesterday revised upward its forecast for Taiwan’s economy, saying it might grow 1 percent this year, from an expected 0.2 percent contraction, due to fast recoveries of private consumption and exports.
The agency expects Taiwan’s economy to expand 2.8 percent next year, as the COVID-19 pandemic is expected to ease in many countries worldwide.
The revision reflects the view that private consumption and merchandise exports will improve faster than the previous baseline, Fitch said.
Taiwan’s exports expanded in the past two months, propelled by strong demand for 5G wireless equipment, remote working and learning, as well as frontloading by China’s Huawei Technologies Co (華為) ahead of a sales ban in the US starting next week, the Ministry of Finance said.
Consumer activity also gained momentum after COVID-19 was brought under control in the nation in May, allowing business in retail shops, restaurants, hotels and recreational facilities to pick up significantly, government data show.
However, the agency’s growth forecast is lower than the 1.52 percent increase projected by the Directorate-General of Budget, Accounting and Statics (DGSAS).
Taiwan’s economy is set for stronger showings in the second half, the high season for exports and consumer activity, the DGSAS said.
Despite the upward growth revision, Fitch reiterated its assessment that Taiwan’s environment for the banking sector remains negative.
This is due to downside risks from the ongoing pandemic and continued pressure on asset quality, profitability and capitalization for some players, Fitch said.
“We do not expect sustained recoveries in these areas until next year,” the agency said.
The banking sector’s impaired loan ratio might rise to 2 percent by the end of next year, from 1 percent in the first half of this year, as recognition of impaired loans would be deferred until the first quarter or later next year when COVID-19 relief measures expire, Fitch said.
As of last month, relief lending by banks, mainly to small and medium-sized enterprises, and retail customers in affected sectors, rose to 5.8 percent of system loans, the agency said.
Near-term credit losses at banks could increase due to rising impaired loans even though most of the relief loans are covered by government guarantees or collateral, Fitch added.
The banking sector’s pretax return on assets would soften to 0.5 percent next year, from 0.6 percent in the first half this year and 0.7 percent for the entire last year, the agency said.
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