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2016.3.25
Pessimism subsides due to a possible normalization of oil price
TIER business composite indices signal sanguinity of outlook

The Taiwanese Economy in February 2016

Although the world economy has not yet positioned itself on a certain recovery track, further monetary operations by the European Central Bank (ECB) and Bank of Japan (BOJ) have at least helped maintain sufficient liquidity to support business activities. In addition, the Federal Reserve (Fed) decided to delay a scheduled rate hike in March and reduce the frequency of tightening this year. Furthermore, plunging crude oil price seems come to an end, and a potential oil spike could be happening anytime soon. All of the semi-good causes jointly sink the pessimistic sentiment. As a result, business composite indicators issued by the Taiwan Institute of Economic Research (TIER) in March signaled somewhat sanguinity of outlook.
Taiwan’s exports in February 2016 decreased by 11.84% compared with the same month last year. The decline in exports would be a 13-month consecutive y-o-y drop. Taiwan’s exports to China, ASEAN 6, the US, European Union, and Japan all dropped by significant percentage points in February. Regarding imports, Taiwan’s imports in February also dropped by 13.11% compared with February in 2015. From January to February this year, Taiwan’s exports and imports gave a trade surplus of US$ 7.67 billion or a decrease by 13.53% on a y-o-y basis.
Taiwan’s consumer price index (CPI) went up by 2.4% in February 2016 compared with the same month of previous year. The current inflation rate would be the highest for the past 36 months. Although global crude oil price plunge would drag down the price level, hiking vegetable and fruit prices due to recent climate change and heavy precipitations offset the effect of dropping oil prices and push up the price level. The core inflation rate however stood at only 0.82% in February. In addition, the wholesale price index (WPI) tumbled by 4.79% in February on the year-on-year basis. The current CPI reading suggests that there’s somewhat inflationary pressure; however, the CBC decided to cut the rediscount rate. The purpose would be to narrow the spread and cope with flowing in hot money.
The unemployment rate in February stood at 3.95% representing a 0.08 percentage points increase compared with the previous month. The current unemployment rate would be the highest for the past 16 month. The averaged salary would be NT$ 75,321 in January. The income per capita increased by 0.74 percentage points compared with the same period of last year.
As for exchange rate, the NTD went somewhat stronger due to the weaker USD. The NTD versus USD stood at 33.49 vs. 1 in late February 2016 indicating 0.47% appreciation. As the US Federal Reserve finally hiked its federate funds rate on December 16, the greenback has gone even stronger earlier this year. However, the Fed decided to postpone a rate hike in its March FOMC meeting. The decision has turned everything around. Regarding the interest rate, it remained low and steady in February due to the continued loose monetary operations by the CBC.

Business Outlook

The portion of manufacturing firms who perceived business were better than expected in the target month was 15.9% or decreased by 4.3% compared with respondents who perceiving better business in the previous month. The portion of those perceived business were getting worse in the target month was 45.5% or increased by 10.8 percentage points than 34.7% perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 38.6% or decreased by 6.5 percentage points compared with 45.1% perceiving constant business in the previous month. Overall, manufacturing firms perceived the business in the target month was rather pessimistic.
In addition, the portion of manufacturers who perceived business would be better in the next six months was 40.4% in the target month or increased by 10.7 percentage points than 29.7% feeling more optimistic about the future in the previous month. The portion of firms who perceived the economic outlook would be worsening was 7.5% or decreased by 8.7 percentage points compared with 16.2% feeling rather pessimistic about the future in the previous month. The portion of manufacturing firms who perceived business remained constant in the next six months stood at 52.2% or decreased by 1.9 percentage points compared with 54.1% feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was rather optimistic.
The manufacturing Composite Indicator for February, 2016 adjusted for seasonal factors on moving average, saw an upward correction, and from a revision of as 90.99 points in January 2016 moved up slightly to 92.26 points. Figure 1 shows an increase of 1.27 points, the first mount after three-month consecutive decline.
The TIER Service Sector Composite Indicator for February 2016 adjusted for seasonal factors on moving average saw an upward correction and from a revision of 84.77 points in January 2016 went up to 86.07 points. Figure 1 shows an increase of 1.30 points, the third month consecutive increase.
In addition, the TIER Construction Sector Composite Indicator for February 2016 adjusted for seasonal factors on moving average, also saw an upward correction, and from a revision of 77.96 points in January 2016 went up to 79.43 points. Figure 1 shows an increase of 1.47 points, the first mount after a one-month decline.

Figure 1, TIER Business Composite Index

Forecast on Individual Industries

Following are manufacturers' sentiments that are industry-specific in the monthly TIER surveys:

Manufacturers’ sentiments that have been in decline in the February survey and are expected to deteriorate over the next six months include:
Wood and Bamboo Products Manufacturing, Non-metallic Mineral Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Glass and Glass Products Manufacturing, Cement and Cement Products Manufacturing, Metal Structure and Architectural Components Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Bicycles Manufacturing, Construction, Basic civil structure construction.
 
Manufacturers’ sentiments that have been in decline in the February survey, but are expected to improve over the next six months include:
Electrical Machinery, Supplies Manufacturing and Repairing, Precision Instruments Manufacturing, Education and Entertainment Articles Manufacturing.
 
Manufacturers’ sentiments that have been in decline in the February survey and are expected to remain sluggish over the next six months include:
Food, Slaughtering, Edible Oil Manufacturing, Flour Milling and Grain Husking , Textiles Mills, Yarn Spinning Mills, Fabric Mills , Apparel, Clothing Accessories and Other Textile Product Manufacturing , Leather, Fur and Allied Product Manufacturing, Paper Manufacturing, Printing, Industrial Chemicals, Plastics and rubber raw materials, Man-made Fibers Manufacturing, Chemical Products Manufacturing, Rubber Products Manufacturing, Plastic Products Manufacturing, Iron and Steel Basic Industries, Fabricated Metal Products Manufacturing, Metal dies, Screw, Nut Manufacturing, Cutlery and tools Manufacturing, Electric Wires and Cables Manufacturing, Communications Equipment and Apparatus Manufacturing, Audio and Video Electronic Products Manufacturing, Transport Equipment Manufacturing and Repairing, Motor Vehicles Manufacturing, Motor Parts Manufacturing, Motorcycles Manufacturing, Bicycles Parts Manufacturing, Real estate investment, Wholesale, Banks, Securities, Insurance, Transportation and storage.
 
Manufacturers surveyed who felt the February outlook was the same as the previous month, but the outlook is expected to exacerbate over the next six months include:
None.
 
Manufacturers surveyed who felt the February outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Electronic Parts and Components Manufacturing, Retail sales.
 
Manufacturers surveyed who felt the February outlook was the same as the previous month and the trend is expected to continue for the next six months include:
Manufacturing, Frozen Food Manufacturing, Soft Drink Manufacturing , Prepared Animal Feeds Manufacturing, Petrochemicals Manufacturing, Petroleum and Coal Products Manufacturing, Electrical Machinery, Electronic Machinery, Motorcycles Parts Manufacturing, Telecommunication services.
 
Manufacturers’ sentiments that have improved in the February survey and is expected to deteriorate over the next six months include:
Electrical Appliances and Housewares Manufacturing.
 
Manufacturers’ sentiments that have improved in the February survey and is expected to remain upbeat over the next six months include:
Restaurants and hotels.
 
Manufacturers’ sentiments that have improved in the February survey and the trend is expected to continue for the next six months include:
Machinery and Equipment Manufacturing and Repairing, Industrial Machinery.

 

 
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