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2016.6.24
Steady global economic performance offers hopeful outlook
TIER business composite indicators turn optimistic

The Taiwanese Economy in May 2016

Both the US Bureau of Economic Analysis and Eurostat recently adjusted Q1 GDP growth rate y-o-y of the US and Europe upward, offsetting the influence that Japan's economy has continued to go slower. In addition, China and ASEAN both seem ready to move out of the woods with fair economic numbers. As a result, the manufacturing, service and construction composite indicators issued by the Taiwan Institute of Economic research (TIER) all went up somewhat in May turning the outlook to a more cheerful mode.
Taiwan's exports in May 2016 decreased by 9.56% compared with the same month last year. The decline in exports would be a 16-month consecutive y-o-y drop. Regarding imports, Taiwan's imports in May also dropped by 3.36% compared with imports in May 2015. From January 1 to May 31 this year, Taiwan's exports and imports gave a trade surplus of US$ 20.46 billion or a decrease by 8.56% on a y-o-y basis.
Taiwan's consumer price index (CPI) went up by 1.24% in May 2016 compared with the same month of previous year. The current inflation rate has remained relatively high compared with most advanced economies. 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 still push up the price level. The core inflation rate however stood at only 0.91% in May. In addition, the wholesale price index (WPI) tumbled by 2.80% in May on the year-on-year basis.
The unemployment rate in May stood at 3.84% representing a 0.02 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. The salary on average in April stood at NT$ 43,560 or 0.73% less compared with the averaged salary in March this year.
As for exchange rate, the NTD went somewhat weaker due to the relatively stronger USD. The NTD versus USD stood at 32.63 vs. 1 in late May 2016 indicating a very mild depreciation. As the US Federal Reserve decided to postpone its scheduled rate hike turning its tone to more dovish, the greenback has gone weaker recently. Fed's decision in July meeting will cause certain impacts. Regarding the interest rate, it remained low and steady in May 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 30.3% or increased by 9.9% 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 23.3% or decreased by 1.0 percentage points than 24.3% perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 46.4% or decreased by 8.8 percentage points compared with 55.2% perceiving constant business in the previous month. Overall, manufacturing firms perceived the business in the target month was rather optimistic.
In addition, the portion of manufacturers who perceived business would be better in the next six months was 31.1% in the target month or decreased by 3.0 percentage points than 34.1% feeling more optimistic about the future in the previous month. The portion of firms who perceived the economic outlook would be worsening was 14.4% or decreased by 0.8 percentage points compared with 15.2% 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 54.6% or increased by 3.9 percentage points compared with 50.7% 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 May, 2016 adjusted for seasonal factors on moving average, saw an upward correction, and from a revision of as 97.27 points in April 2016 moved up to 99.50 points. Figure 1 shows an increase of 2.23 points, the fourth consecutive mount.
The TIER Service Sector Composite Indicator for May 2016 adjusted for seasonal factors on moving average saw a upward correction and from a revision of 86.70 points in April 2016 went up to 88.95 points. Figure 1 shows an increase of 2.25 points, the first mount after a previous decline.
In addition, the TIER Construction Sector Composite Indicator for May 2016 adjusted for seasonal factors on moving average, also saw an upward correction, and from a revision of 80.67 points in April 2016 went up to 84.25 points. Figure 1 shows an increase of 3.58 points, the fourth 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 May survey and are expected to deteriorate over the next six months include:
Metal Structure and Architectural Components Manufacturing, Basic civil structure construction.
 
● Manufacturers' sentiments that have been in decline in the May survey, but are expected to improve over the next six months include:
Education and Entertainment Articles Manufacturing.
 
● Manufacturers' sentiments that have been in decline in the May survey and are expected to remain sluggish over the next six months include:
Textiles Mills, Yarn Spinning Mills, Fabric Mills , Apparel, Clothing Accessories and Other Textile Product Manufacturing , Leather, Fur and Allied Product Manufacturing, Man-made Fibers Manufacturing, Wholesale.
 
● Manufacturers surveyed who felt the May outlook was the same as the previous month, but the outlook is expected to exacerbate over the next six months include:
Chemical Products Manufacturing, Construction.
 
● Manufacturers surveyed who felt the May outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Petrochemicals Manufacturing, Glass and Glass Products Manufacturing, Precision Instruments Manufacturing, Restaurants and hotels.
 
● Manufacturers surveyed who felt the May outlook was the same as the previous month and the trend is expected to continue for the next six months include:
Manufacturing, Slaughtering, Wood and Bamboo Products Manufacturing, Paper Manufacturing, Printing, Industrial Chemicals, Plastics and rubber raw materials, Rubber Products Manufacturing, Plastic Products Manufacturing, Non-metallic Mineral Products Manufacturing, Cement and Cement Products Manufacturing, Iron and Steel Basic Industries, Fabricated Metal Products Manufacturing, Machinery and Equipment Manufacturing and Repairing, Cutlery and tools Manufacturing, Industrial Machinery, Electrical Machinery, Electric Wires and Cables Manufacturing, Electrical Appliances and Housewares Manufacturing, Electronic Machinery, Communications Equipment and Apparatus Manufacturing, Motorcycles Manufacturing, Motorcycles Parts Manufacturing, Bicycles Manufacturing, Bicycles Parts Manufacturing, Telecommunication services, Transportation and storage.
 
● Manufacturers' sentiments that have improved in the May survey and is expected to deteriorate over the next six months include:
Porcelain and Ceramic Products Manufacturing.
 
● Manufacturers' sentiments that have improved in the May survey and is expected to remain upbeat over the next six months include:
Data Storage Media Units Manufacturing and Reproducing, Electronic Parts and Components Manufacturing, Motor Vehicles Manufacturing.
 
● Manufacturers' sentiments that have improved in the May survey and the trend is expected to continue for the next six months include:
Food, Frozen Food Manufacturing, Edible Oil Manufacturing, Flour Milling and Grain Husking , Soft Drink Manufacturing , Prepared Animal Feeds Manufacturing, Petroleum and Coal Products Manufacturing, Metal dies, Screw, Nut Manufacturing, Electrical Machinery, Supplies Manufacturing and Repairing, Audio and Video Electronic Products Manufacturing, Transport Equipment Manufacturing and Repairing, Motor Parts Manufacturing, Real estate investment, Retail sales, Banks, Securities, Insurance.

 

 
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