Taiwan Ratings, a local partner of S&P Global Co., on Wednesday forecast that Taiwan's economy will slow in 2023, with gross domestic product (GDP) growth expected to fall to 1.5 percent from an anticipated 2.5 percent increase in 2022.
At a news conference on Taiwan's 2023 credit outlook, the rating agency said as the United States, the largest economy in the world, could suffer a recession and the eurozone record zero GDP growth in 2023, Taiwan's export-oriented economy is expected to feel the pinch.
Amid the global economic slowdown, "the country's semiconductor sector is particularly exposed to the economic downturn, but slowing global demand could hit non-tech sectors even harder, particularly those related to commodity and consumer products," Taiwan Ratings said.
The silver lining is that the support provided by recovering domestic consumption and tourism activity could drive up export services, ensuring Taiwan's economic growth remains moderate over the next few quarters.
Taiwan Ratings was more cautious about Taiwan's economic growth, than the Directorate-General of Budget, Accounting and Statistics (DGBAS). In November, the DGBAS cut its forecast for Taiwan's gross domestic product (GDP) growth in 2022 by 0.70 percentage points from a previous estimate to 3.06 percent, and lowered its 2023 forecast by 0.30 percentage points to 2.75 percent.
The rating agency said interruptions in supply chains, inflationary pressure, geopolitical tensions and monetary policy tightening by the major central banks have created uncertainty over the global economy and affected the business sector's expenditure plans for the next few quarters.
For Taiwan, in particular, companies are expected to face some major risks, including a worse than expected global economic slowdown; increased geopolitical tensions squeezing trade, financial and investment flows; higher borrowing costs or stricter access to financing; inability to pass on persistently high prices, which will erode corporate profitability, Taiwan Ratings said.
In addition, Taiwan's companies will have to take on other challenges such as renewed pandemic disruptions dampening economic recovery; natural disasters threatening energy and food supplies, impacting supply chains and risking another wave of inflation; increasing threats from cyberattacks and undermining Taiwan's efforts to embrace digitalization, disrupting business models and raising costs, Taiwan Ratings added.
However, Taiwan Ratings said the local banking sector would continue to see stable credit trends throughout 2023 as banks in Taiwan have solid capital levels that provide a buffer in the face of potential economic turbulence, the rating agency said.
In contrast, Taiwan life insurance companies are expected to face growing challenges managing their overall capital and earnings profiles and seek new investment opportunities, while intensified market volatility and the potential rise in foreign exchange hedging costs could hurt their earnings, according to the rating agency.
Source: Focus Taiwan News Channel