Taiwan's Economic Resilience: S&P Affirms 'AA+' Rating Amidst Global Challenges

Despite Geopolitical Tensions and Trade Uncertainties, Taiwan's Economic Outlook Remains Stable, Thanks to Semiconductor Strength and Sound Fiscal Management.

Taipei, Taiwan – S&P Global has reaffirmed its "AA+" long-term and "A-1+" short-term credit ratings for Taiwan, underscoring the island's economic strength and resilience in the face of ongoing global challenges. The ratings agency highlighted its expectation that Taiwan's robust semiconductor exports will continue to offset growth issues tied to geopolitical tensions and evolving trade dynamics over the next two years.

The stable outlook is a reflection of Taiwan's "robust external position" and "strong economic support," according to S&P. Despite global trade uncertainties, Taiwan is poised to benefit from a strong export performance, driven by advancements in the information technology sector. The agency anticipates Taiwan's growth prospects to outpace those of its peers with similar income levels.

S&P also noted that while defense and social spending have increased, Taiwan's "fiscal settings remain healthy, supported by strong revenue growth." The government’s fiscal strength is further bolstered by "ample domestic liquidity and low debt-servicing costs."

Regarding cross-strait relations, S&P believes the close economic and trade ties between China and Taiwan will mitigate the risk of a major military conflict.

The ratings agency also emphasized Taiwan's strong monetary flexibility. "The central bank has demonstrated sound monetary management, which has kept inflation low and stable despite ample liquidity in the system," S&P stated. "The relatively flexible exchange rate and the new Taiwan dollar being an actively traded currency help cushion economic and financial shocks."

Concerning recent U.S. tariffs, S&P acknowledged the initial tariffs' potential impact on Taiwan's export-oriented economy. However, the agency stated that "Taiwan's credit metrics have sufficient buffers against such an economic shock" and pointed to the island's leadership position in advanced chip manufacturing. This moderates the impact of U.S. tariffs, as importers have limited scope to diversify their supplier base.

S&P lauded Taiwan's highly competitive electronics manufacturing sector, noting its strong position to capitalize on long-term developments in the technology-intensive integrated circuit industry. The agency anticipates sustained high demand for chips due to advancements in artificial intelligence, high-performance computing, 5G networks, big data processing, and electric vehicle development.