TAIPEI (Taiwan News) — Fitch Ratings on Tuesday forecast Taiwan’s GDP growth will slow to 2.7% in 2026 and warned of three major downside risks.

Sophia Chen (陳怡如), a Fitch director in Taiwan, said the agency revised its 2025 growth forecast upward to 3.4%, as many industries accelerated purchases ahead of new tariffs, per CNA.

Sagarika Chandra, Fitch’s Asia-Pacific sovereign ratings director, said Taiwan benefits from strong competitiveness in advanced manufacturing and semiconductors, but growth is still expected to moderate to 2.7% in 2026.

Fitch cited three key risks to the outlook: a sharp slowdown in major trading partners’ economies, weaker demand following the AI spending boom, and heightened geopolitical tensions and uncertainty over US trade policy.

Jenny Huang (黃筱婷), a Fitch senior director, said Taiwan’s traditional industries face a difficult environment as the energy transition accelerates, requiring heavy capital investment and increasing credit risk. The retail sector could also face pressure from weaker consumer confidence and intensifying competition.

Huang added that a sharp appreciation of the Taiwan dollar could erode exporters’ price advantages, though it would benefit firms reliant on imported raw materials and equipment by reducing costs.

She also noted that traditional industries face regional overcapacity as Chinese companies expand overseas and emerging Asian economies accelerate local industrial development. Export-heavy sectors such as petrochemicals, chemicals, and steel are especially vulnerable to oversupply, weak profitability, and cash flow strain.

Fitch said high capital expenditures tied to the energy transition could increase corporate debt and reduce financial flexibility. While government subsidies or low-interest loans may provide temporary relief, Huang said structural issues related to scale, cost, differentiation, and value-chain upgrading cannot be easily solved with financial support.

She added that while subsidies can buy time, long-term success will depend on companies’ ability to transform using their own resources.