Taiwan’s credit ratings hold steady with S&P’s ’AA+/A-1+’ rating and stable outlook

Investing.com -- The credit ratings for Taiwan have been affirmed at ’AA+’ for long-term and ’A-1+’ for short-term by S&P Global Ratings. The outlook for the long-term rating remains stable. This decision reflects Taiwan’s strong net external asset position, fiscal settings, and monetary flexibility, which are expected to weather economic challenges brought about by the deterioration in international trade conditions.

Despite geopolitical tensions, Taiwan’s long-term growth in its highly competitive manufacturing sector is not expected to be significantly affected. The stable outlook over the next two years is based on the assumption that cross-strait relations and fluid trade dynamics will not seriously disrupt Taiwan’s economic stability.

S&P Global Ratings affirmed its ratings on Taiwan on April 21, 2025. The transfer and convertibility assessment remains unchanged at AAA. The stable outlook over the next 24 months is expected to be maintained due to the structural demand for Taiwan’s semiconductor exports, which will likely offset growth issues associated with longstanding geopolitical tensions and evolving trade settings.

The ratings could be lowered if Taiwan’s economic growth slows sharply and persistently, or if cross-strait relations deteriorate abruptly, resulting in heightened geopolitical risks and serious adverse effects on the economy and fiscal position. Conversely, the ratings could be raised if cross-strait tensions ease materially, reducing the risks to Taiwan’s credit metrics.

Despite uncertainties related to global trade, Taiwan’s competitive export sector is expected to continue benefiting from global advancement in the IT sector. This supports the view that Taiwan’s growth prospects are stronger than peers’ at a similar income level.

Taiwan’s fiscal settings remain healthy, supported by strong revenue growth, effective policymaking, and low debt-servicing costs. Despite increased spending in defense and social benefits, Taiwan’s fiscal strength is expected to be maintained.

The Taiwanese economy showed a strong recovery in 2024 with real GDP growth of 4.6%, up from 1.1% in 2023, largely due to a sharp upturn in the global semiconductor market. Growth is expected to be 2.1% in 2025, supported by sustained but slower demand for Taiwanese exports and continued investment growth.

The U.S. imposed a 32% tariff on Taiwan on April 2, 2025, which was subsequently paused for 90 days. Despite this, Taiwan’s credit metrics are believed to have sufficient buffers against such an economic shock, partly due to its leadership position in advanced chip manufacturing.

Taiwan’s trend growth, as measured by the 10-year weighted average growth in real GDP per capita, is projected to be approximately 3.2%, among the highest of peers in the same income level. Taiwan’s per capita income is forecasted to be close to US$40,000 by the end of 2028.

Taiwan’s robust external metrics, strong economic performance, and prudent fiscal stance continue to support the ratings. Taiwan’s net external assets, including those of Taiwanese non-financial corporates, will remain comfortably above 300% of current account receipts (CARs) over the next three years.

Although Taiwan’s fiscal stance is expected to remain prudent, the government is unlikely to keep generating surpluses in the near future due to elevated spending needs. An aging population and defense needs will add to budget pressure in the coming years.

Despite a muted global growth outlook for 2025, Taiwan’s net exports are expected to remain high as demand for Taiwanese technology products remains firm. Taiwan’s strong economic performance has reduced the need for extensive fiscal support. Taiwan’s debt financing costs have declined over the years due to strong liquidity and low domestic funding costs.

Cross-strait tensions continue to constrain the ratings on Taiwan, as a sharp deterioration in risk sentiment could hurt Taiwan’s export-reliant economy and fiscal position. However, a major military conflict is not anticipated. Close economic and trade linkages between mainland China and Taiwan support this assessment.

The ratings on Taiwan are anchored on its robust external position and strong economic support. Despite the current uncertainties related to global trade, Taiwan’s competitive export sector is expected to continue benefiting from global advancement in the IT sector. This supports the view that Taiwan’s growth prospects are stronger than peers’ at a similar income level.

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