S&P Global Ratings yesterday kept its forecast for Taiwan’s GDP growth this year at 2.8 percent, in contrast to last year’s 6.6 percent growth, as global inflation and geopolitical tensions hit export sectors while a recovery in domestic demand stalls.
“The projected growth is less than 50 percent of last year’s showing, but it remains impressive,” said Taiwan Ratings Corp (中華信評), the local arm of the international ratings agency, attributing Taiwan’s performance to strong global demand for electronic components.
Persistent high inflationary pressure due to energy and raw material price increases, and supply chain disruptions pose the biggest challenge for Taiwanese companies and is squeezing their profit margin, Taiwan Ratings said.
Photo: I-Hwa Cheng, Bloomberg
“We consider inflationary pressure to have negative implications for local manufacturers” because Taiwan relies heavily on imported oil to power its industrial sector, the company said.
Monetary tightening around the world and draconian COVID-19 control measures in China are two further challenges facing Taiwan, it said, adding that the nation’s trade ties with Ukraine and Russia are small.
Russia’s war against Ukraine and ensuing global supply chain bottlenecks could indirectly weigh on local companies and households’ discretionary spending due to trade flow restrictions, it said.
Taiwan’s export growth over the past couple of months and growing capital expenditure are showing signs of a slowdown, as economic uncertainties intensify, it said.
Domestically, an expected rebound in local consumer spending remained stalled and largely hinged on how inflation and COVID-19 case numbers develop, it said.
As demand and consumer confidence have not recovered to pre-COVID-19 pandemic levels, the ability to pass input costs to customers would be difficult, it said.
Taiwan Ratings raised its prediction for Taiwan’s consumer price gains to 3.2 percent this year, saying that it expects the central bank to increase the policy discount rate by 0.25 percentage points to 1.75 percent by the end of this year.
Such a rate hike would be of a magnitude seldom seen in the past few years and affect payment affordability, particularly for small and medium-sized enterprises with relatively weak credit ratings, it said.
Separately, Fitch Ratings said on Monday that the operating environment and credit profiles of local banks remained stable, despite interest rate hikes that affect property-related lending.
Property-related lending accounts for a significant share of loans, as mortgages and construction loans were 28 percent and 9 percent respectively of total loans in the first four months of this year, it said.
“We view property asset-quality resilience as key to the stability of banks’ credit profiles and ratings in the interest rate hike environment,” Fitch said, adding that it expects interest rates to increase by 62.5 basis points on average this year and 25 basis points next year.
This included rate hikes of 25 basis points in the second half of the year, Fitch added.
Regulatory tightening in property loans since December 2020 would tame loan growth over the next 18 months, it said.
The share of new property loans so far this year fell to 25 percent of total new loans, down from 49 percent and 58 percent last year and in 2020 respectively, after growth in construction loans and mortgages slowed, it said.
The bad-loan ratio related to mortgages would remain at the low level of about 0.08 percent reported in December last year, it said, adding that household debt-servicing ability has held firm over the past decade, due partly to the lengthening in average mortgage tenor.
Any weakening in household affordability due to interest rate hikes should be manageable in light of Taiwan’s steady economic growth, it said, adding that a further lengthening in mortgage tenor is unlikely given banks’ stricter lending policies amid rising interest rates.
The US dollar on Friday rose against the euro, but pared gains late in a session that was muddied by quarter-end trading, while riskier commodity-led currencies fell sharply after European inflation hit a record high and US consumer spending increased faster than expected. Although the dollar index was showing its biggest quarterly gain since the first quarter 2015, but was registered its first weekly decline in three weeks. Sterling rose against the dollar after falling earlier in the day. The pound last showed four straight sessions of gains followed by wild declines on concerns about Britain’s plan to slash taxes and pay
SAMSUNG DISTANT SECOND: Top local chip fims served nearly two-thirds of the global market in Q2, while Samsung kept South Korea competitive with its 16.5 percent share Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) remained the world’s largest contract chipmaker in the second quarter of the year with a 53.4 percent share of the global pure-play foundry market, the Taipei-based market information advisory firm TrendForce Corp (集邦科技) said in a research report on Tuesday. Despite TSMC’s market share dipping slightly from 53.6 percent in the first quarter, it was still far ahead of its rivals, TrendForce said. TSMC continued to benefit from emerging technologies, such as high-performance computing devices, the Internet of Things and automotive electronics, as it posted US$18.15 billion in sales in the second quarter, up 3.5 percent
Moderna Inc has refused to hand over to China the core intellectual property behind the development of its COVID-19 vaccine, leading to a collapse in negotiations on its sale in the country, the Financial Times reported on Saturday, citing people familiar with the matter. The Cambridge, Massachusetts-based pharmaceutical company turned down China’s request to disclose the formula for its mRNA vaccine because of commercial and safety concerns, the newspaper said, citing people involved in negotiations that took place from 2020 to last year, adding that the vaccine maker is still “eager” to sell the product to China. The company had “given up”
PRICE POINT: While overall demand has lagged expectations, higher-priced iPhone 14 Pro models appear to attract more attention than entry-level versions, sources said Apple Inc is backing off plans to increase production of its new iPhones this year after an anticipated surge in demand failed to materialize, people familiar with the matter said. The Cupertino, California-based company has told suppliers to pull back from efforts to increase assembly of the iPhone 14 product family by as many as 6 million units in the second half of this year, said the people, asking not to be named as the plans are not public. Instead, the company would aim to produce 90 million handsets for the period, about the same level as in the second half