Taiwan’s credit metrics have improved due to robust performance and a swift economic recovery from the COVID-19 pandemic, which allowed its external buffers to improve and reduce the need for massive fiscal stimulus, Fitch Ratings said yesterday.
GDP growth has been stronger since Fitch last year affirmed Taiwan’s rating at “AA-” with a stable outlook, the ratings agency said.
Preliminary data indicated that Taiwan’s economy expanded 8.2 percent last quarter, its best showing in more than a decade, Fitch said.
This created considerable upside risks to Fitch’s growth forecast of 4.5 percent for this year and builds on an impressive 3.1 percent expansion last year, when Taiwan was one of few economies to expand at all, it said.
Growth momentum is underpinned by the nation’s success in containing the pandemic and global demand for its electronics exports, particularly semiconductors, in which local firms are global leaders, it said.
Fitch expects exports of information and communications equipment, and electronics to remain strong this year and next year, given global supply shortages, it said.
Robust exports have also contributed to a reinforcement of Taiwan’s external buffers, with foreign-exchange reserves rising to US$541 billion last month, up 12.3 percent from a year earlier, it said.
Taiwan’s external finances are already among the strongest among rated sovereigns, and an improved net external credit position could lead to positive rating action, Fitch said.
Surging global demand for high-tech components should also have a positive spillover effect on domestic activity this year, as major semiconductor and high-tech manufacturers have announced aggressive capacity expansion plans in response to global supply shortages, it said, adding that it would boost private investment and the labor market.
A water shortage is unlikely to have a material impact on semiconductor production or planned investments, so its influence over the economy should be limited, Fitch said.
Rationing and recycling measures have helped support semiconductor output, it added.
However, other sectors such as agriculture have been affected, and tech firms would feel a larger impact if the “plum rains” fail to alleviate the water shortage, it said.
Another positive trend for the economy is the reshoring of Taiwanese manufacturers amid US-China trade friction.
The government’ latest figures show that 871 companies plan to invest about NT$1.2 trillion (US$42.87 billion) under three government programs.
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