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2016.5.25
The slowing global economic recovery continues to discourage Taiwan's business outlook
TIER business composite indicators offer mixed signals

The Taiwanese Economy in April 2016

The global demand is still relatively weak, as the US seems to be the only economy that is on a rather certain recovery track. As for other major economies, China is likely to hit a soft landing sack. Japan's traditional exports engine is losing steam. In addition, the European economy remains sluggish and may be further impacted by the potential “Brexit” in June. Taiwan's exports order and value have been consecutive declining. Although the manufacturing and construction composite indicators issued by the Taiwan Institute of Economic research (TIER) both went up somewhat in April, the service composite indicator dropped for the first time after 4-month consecutive increase.
Taiwan's exports in April 2016 decreased by 6.5% compared with the same month last year. The decline in exports would be a 15-month consecutive y-o-y drop. Regarding imports, Taiwan's imports in April also dropped by 9.6% compared with imports in April 2015. From January 1 to April 30 this year, Taiwan's exports and imports gave a trade surplus of US$ 16.96 billion or a decrease by 0.7% on a y-o-y basis.
Taiwan's consumer price index (CPI) went up by 1.88% in April 2016 compared with the same month of previous year. The current inflation rate has remained relatively high compared with the Europe and Japan. 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 0.92% in April. In addition, the wholesale price index (WPI) tumbled by 4.23% in April on the year-on-year basis.
The unemployment rate in April stood at 3.86% representing a 0.03 percentage points decrease compared with the previous month. The current unemployment rate is still considered at a relatively high level. Because unemployment rate is a lag indicator, which in a way has reflected that economic slowdown since Q2 last year.
As for exchange rate, the NTD went somewhat stronger due to the relatively weaker USD. The NTD versus USD stood at 32.28 vs. 1 in late April 2016 indicating a very mild appreciation. As the US Federal Reserve finally hiked its federate funds rate on December 16, the greenback has gone even stronger earlier this year. Although the Fed decided to postpone a rate hike in its March FOMC meeting, the Fed officials have been making more hawkish statements lately. Fed's decision in June meeting will be critical. Regarding the interest rate, it remained low and steady in April 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 18.8% or decreased by 35.1% 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 25.0% or increased by 16.2 percentage points than 8.8% perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 56.3.6% or increased by 19.0 percentage points compared with 37.3% 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 34.6% in the target month or decreased by 0.4 percentage points than 35.0% feeling more optimistic about the future in the previous month. The portion of firms who perceived the economic outlook would be worsening was 15.9% or increased by 2.9 percentage points compared with 13.0% 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 49.5% or increased by 2.5 percentage points compared with 52.0% feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was more neutral.
The manufacturing Composite Indicator for April, 2016 adjusted for seasonal factors on moving average, saw an upward correction, and from a revision of as 96.66 points in March 2016 moved up slightly to 97.07 points. Figure 1 shows an increase of 0.41 points, the third consecutive mount.
The TIER Service Sector Composite Indicator for April 2016 adjusted for seasonal factors on moving average saw a downward correction and from a revision of 88.51 points in March 2016 went down to 87.27 points. Figure 1 shows a decrease of 1.24 points, the first decline after four-month consecutive increase.
In addition, the TIER Construction Sector Composite Indicator for April 2016 adjusted for seasonal factors on moving average, also saw an upward correction, and from a revision of 78.10 points in March 2016 went up to 81.22 points. Figure 1 shows an increase of 3.12 points, the third consecutive mount.

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

 

 

 
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