Taiwan’s economy is expected to undergo another year of uneven growth next year, as robust demand for artificial intelligence (AI) continues to support the technology sector, while commodity industries remain constrained by chronic overcapacity in China and rising trade barriers, Taiwan Ratings Corp (中華信評) said yesterday.
Global investment in AI infrastructure is set to sustain Taiwan’s technology exports and corporate earnings, particularly for firms involved in advanced chips, servers and related components, Taiwan Ratings corporate credit analyst Raymond Hsu (許智清) said.
Strong cash flow generation should allow most technology companies to fund higher capital expenditures, while maintaining solid balance sheets and credit buffers, he said.
Photo: Wu Hsin-tien, Taipei Times
Taiwan Ratings, the local arm of S&P Global Ratings, forecast GDP growth of 2.4 percent for next year, a sharp slowdown from this year’s expected 6.7 percent expansion.
The agency said that a potential leveling-off in global AI investment, coupled with lingering uncertainties surrounding tariffs and trade policies, could temper export and investment growth.
While AI-driven demand could underpin technology firms’ financial profiles, Taiwan Ratings warned that current investment enthusiasm might lead to overcapacity and inventory pressure.
Overseas semiconductor fabrication projects also carry execution and cost risks that could strain cash flow and delay anticipated efficiency gains, it added.
Meanwhile, Taiwan’s commodity sectors face a more challenging outlook.
Persistent overcapacity in China, weak private consumption, and a still-struggling property market could hinder earnings recovery for oil-based chemicals, steel and other basic materials producers, the agency said.
Utilization rates for commodity chemicals are likely to remain well below mid-cycle levels, keeping profitability subdued, it said.
Aggressive capacity expansion in China, combined with newer, more cost-efficient facilities, might further depress prices and test the viability of older, less-integrated plants across Asia, it said.
Taiwanese producers’ efforts to shift product portfolios away from commodity chemicals might not fully offset declining export demand, it added.
Steelmakers also face headwinds from tariffs and rising protectionism, which could shrink export markets and complicate diversification efforts, Taiwan Ratings said.
While China moves to cut crude steel output this year, it remains unclear whether further reductions next year would be enough to ease pricing pressure amid inventory gluts and weak demand, the agency said.
On the domestic front, new car sales could rebound under more favorable tax policies, supporting auto leasing firms and tire makers, which are expected to maintain stable credit profiles, it said.
Financial institutions are also likely to sustain credit strength despite macroeconomic and geopolitical uncertainties, aided by stable net interest margins, steady fee income and adequate capitalization, Taiwan Ratings said.
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