Taiwan upgraded to the brink of AAA by S&P amid export strength

S&P Global Ratings upgraded Taiwan by one notch to just below its top grade, as exports remain strong and relations with China aren’t expected to “seriously disrupt” economic stability in the next three to five years. 

“We believe that cross-straight relations will not deteriorate toward a major military or economic conflict,” the ratings firm said in a statement Friday. “Close economic and trade linkages between mainland China and Taiwan should support this.” Meanwhile, “structural demand for Taiwan’s semiconductor exports is likely to offset growth issues associated with longstanding geopolitical tensions.”

It’s the second upgrade in a year from S&P, which now has Taiwan at AA+ for the first time since 2001. The ratings outlook has been changed to stable from positive. As part of its latest upgrade, S&P boosted its economic assessment of Taiwan on expectations that improved average income levels will be sustained by stronger growth prospects. It also anticipates the government maintaining solid fiscal metrics for the next three to five years.

While S&P said it could downgrade Taiwan if economic growth slows sharply or if cross-strait relations “deteriorate abruptly,” another upgrade could occur if “tensions ease materially, reducing the risks to Taiwan’s credit metrics.”

The ratings firm predicts Taiwan’s economy will grow 2.8% this year, in contrast to the government’s 4.4% prediction. Official data this week showed economic growth slowing in the first quarter, with industrial production rising the least since May 2020 last month.

Taiwan’s economy has been boosted by demand for electronics manufactured there, prompting the construction of new production lines last year to meet demand. But a still-growing outbreak of Covid-19 on the island has raised some concerns about near-term economic strength.