Sound Credit Fundamentals: Taiwan has exceptionally strong external finances, demonstrated fiscal prudence, high governance indicators and a competitive business environment. The rating is primarily constrained by Taiwan’s vulnerability to external demand shocks and abrupt shifts in global trade policy that could affect the technology sector, complex and increasingly strained cross-strait relations and per capita income that Fitch Ratings projects will remain low relative to ‘AA’ category peers. Cross-Strait Tensions to Persist: Fitch anticipates a continuation of the status quo, with heightened cross-strait tensions, which remain a key weakness of Taiwan’s credit profile. We do not foresee tensions undermining Taiwan’s near-term economic and political stability. However, we expect Taiwanese manufacturing to continue reshoring and nearshoring away from China in pursuit of supply-chain resilience in the coming year. Growth to Rebound; Uncertainty Remains: Fitch forecasts Taiwan’s growth to accelerate to 2.8% in 2024, from 1.0% in 2023. We expect an upturn in the global tech cycle towards end-2023. However, Taiwan’s trade-dependent economy remains vulnerable to a more pronounced global growth downturn and delayed recovery in the semiconductor cycle. Moreover, heightened cross-strait tensions and demographic headwinds could exacerbate challenges to the medium-term growth outlook. Prudent Public Finance Management: Fitch forecasts a general government deficit of 0.2% of GDP in 2023, against an approved budget deficit of 2.8%. Our baseline reflects strong income tax revenue collection, which would offset the government’s stepped-up fiscal response to mitigate cost-of-living pressure and support the post Covid-19 pandemic recovery. We forecast gross general government debt/GDP to remain on a modestly downward trajectory over the medium term.