Gold prices tick higher on fresh US tariff threats, Fed rate cut hopes
Investing.com -- Fitch Ratings has affirmed Taiwan’s Long-Term Foreign-Currency Issuer Default Rating at ’AA’ with a Stable Outlook, citing the island’s strong external finances and prudent fiscal management.
The rating agency highlighted Taiwan’s position as a substantial net external creditor, with a net external creditor position of 214% of GDP as of end-2024, far exceeding the ’AA’ median of just 6.4% of GDP. Taiwan’s current account surplus is expected to remain robust at around 15% of GDP during 2025-2027.
Foreign exchange reserves increased by approximately $21 billion year-to-date through June, despite some volatility in capital flows.
Fitch projects Taiwan’s government debt-to-GDP ratio will steadily decline to about 27% by 2027 from 31% in 2024, reflecting low deficits and solid economic growth. The general government balance registered a surplus of 0.4% of GDP in 2024, outperforming the target deficit of 1.7% of GDP due to revenue overperformance and slight underspending.
For 2025, Fitch forecasts GDP growth of 3.4%, above the official forecast of 3.1%, supported by strong exports driven by continued demand for AI-related products and moderate gains in private consumption. Growth is expected to moderate to 2.7% in 2026-2027.
Taiwan’s advanced manufacturing and specialized semiconductor ecosystem provide a competitive edge, with Taiwan Semiconductor Manufacturing Company holding a 60% global market share in the foundry segment. Taiwanese firms also account for nearly 90% of global AI servers.
However, the rating agency noted several challenges, including complex cross-strait relations, vulnerability to external demand shocks, and potential global trade policy changes affecting the technology sector. Cross-strait tensions are expected to persist, with China conducting military drills encircling the island in October 2024 and April 2025.
The ruling Democratic Progressive Party’s loss of majority in the legislature following the 2024 parliamentary election continues to present challenges for policy implementation. The 2025 budget was passed with spending cuts of about TWD207.6 billion (0.8% of 2025 GDP forecast), particularly to national defense.
Fitch also highlighted risks in Taiwan’s large life insurance sector, which is highly exposed to appreciation of the Taiwan dollar due to its large short position. A sharp currency appreciation of 7% in May prompted central bank intervention to stabilize the currency and limit the sector’s losses.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.