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2016.7.25
International institutes express further pessimism regarding global outlook
TIER expects a tepid recovery in H2 by revising down the annual growth forecast

The Taiwanese Economy in June 2016

Both the International Monetary Fund and Economist Intelligence Unit have revised the world GDP growth and trade growth downward. The revisions indicate that the final demands have been weakening. The United Kingdom held a referendum on 23 June voting to leave the European Union. The “Brexit” has been widely considered as a black swan that could further frustrate the already weakening global conditions. As a result, the manufacturing and service indicators issued by the Taiwan Institute of Economic research (TIER) both went down somewhat in June turning the outlook to a more gloomy mode. In addition, TIER revises down its forecast for Taiwan’s real GDP growth rate in 2016 from 1.27% to 0.77%.
Taiwan’s exports in June 2016 decreased by 2.14% compared with the same month last year. The decline in exports would be a 17-month consecutive y-o-y drop, a historical record. Regarding imports, Taiwan’s imports in June also dropped by 10.01% compared with imports in June 2015. From January 1 to June 30 this year, Taiwan’s exports and imports gave a trade surplus of US$ 24.04 billion or a decrease by 1.10% on a y-o-y basis.
Taiwan’s consumer price index (CPI) went up by 0.90% in June 2016 compared with the same month of previous year. The current inflation rate has remained somewhat higher compared with most advanced economies such as Japan and EU countries. 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 0.80% in June. In addition, the wholesale price index (WPI) tumbled by 2.67% in June on the year-on-year basis.
The unemployment rate in June stood at 3.92% representing a 0.08 percentage points increase 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 May stood at NT$ 45,828 or 5.21% more compared with the averaged salary in April this 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 June 2016 indicating a very mild appreciation. 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 the near future meetings may add further uncertainties to the dithering global business outlook. Regarding the interest rate, it remained low and steady in June 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 23.8% or decreased by 6.8% 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 27.1% or increased by 4.6 percentage points than 22.5% perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 46.9% or increased by 2.3 percentage points compared with 46.9% 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 24.7% in the target month or decreased by 5.4 percentage points than 30.1% feeling more optimistic about the future in the previous month. The portion of firms who perceived the economic outlook would be worsening was 20.0% or decreased by 4.9 percentage points compared with 15.1% 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 55.3% or increased by 0.6 percentage points compared with 54.7% feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was pessimistic as well.
The manufacturing Composite Indicator for June, 2016 adjusted for seasonal factors on moving average, saw a downward correction, and from a revision of as 99.46 points in May 2016 moved down to 96.97 points. Figure 1 shows a decrease of 2.49 points, the first decline after four-month consecutive rise.
The TIER Service Sector Composite Indicator for June 2016 adjusted for seasonal factors on moving average also saw a downward correction and from a revision of 88.87 points in May 2016 went down to 85.61 points. Figure 1 shows a decrease of 3.26 points, the first decline after a previous rise.
In addition, the TIER Construction Sector Composite Indicator for June 2016 adjusted for seasonal factors on moving average, saw an upward correction, and from a revision of 84.59 points in May 2016 went up to 85.96 points. Figure 1 shows an increase of 1.37 points, the fifth monthly 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 June survey and are expected to deteriorate over the next six months include:
Porcelain and Ceramic Products Manufacturing, Machinery and Equipment Manufacturing and Repairing, Cutlery and tools Manufacturing, Industrial Machinery, Construction, Basic civil structure construction.

● Manufacturers' sentiments that have been in decline in the June 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 June 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, Wood and Bamboo Products Manufacturing, Man-made Fibers Manufacturing, Rubber Products Manufacturing, Real estate investment.

● Manufacturers surveyed who felt the June outlook was the same as the previous month, but the outlook is expected to exacerbate over the next six months include:
Chemical Products Manufacturing, Electrical Appliances and Housewares Manufacturing, Motor Parts Manufacturing.

● Manufacturers surveyed who felt the June outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Glass and Glass Products Manufacturing, Precision Instruments Manufacturing, Restaurants and hotels.

● Manufacturers surveyed who felt the June outlook was the same as the previous month and the trend is expected to continue for the next six months include:
Manufacturing, Food, Slaughtering, Frozen Food Manufacturing, Edible Oil Manufacturing, Flour Milling and Grain Husking , Soft Drink Manufacturing , Prepared Animal Feeds Manufacturing, Paper Manufacturing, Printing, Industrial Chemicals, Petrochemicals Manufacturing, Plastics and rubber raw materials, Plastic Products Manufacturing, Non-metallic Mineral Products Manufacturing, Cement and Cement Products Manufacturing, Iron and Steel Basic Industries, Fabricated Metal Products Manufacturing, Metal dies, Screw, Nut Manufacturing, Electric Wires and Cables Manufacturing, Electronic Machinery, Communications Equipment and Apparatus Manufacturing, Motorcycles Manufacturing, Motorcycles Parts Manufacturing, Bicycles Manufacturing, Bicycles Parts Manufacturing, Retail sales, Wholesale, Banks, Securities, Telecommunication services, Transportation and storage.

● Manufacturers' sentiments that have improved in the June survey and is expected to deteriorate over the next six months include:
Metal Structure and Architectural Components Manufacturing, Electrical Machinery.

● Manufacturers' sentiments that have improved in the June 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 June survey and the trend is expected to continue for the next six months include:
Petroleum and Coal Products Manufacturing, Electrical Machinery, Supplies Manufacturing and Repairing, Audio and Video Electronic Products Manufacturing, Transport Equipment Manufacturing and Repairing, Insurance.

TIER Forecast (issued on 25th July, 2016.)
(NT$100 million, Chained (2011) Dollars)

 

 

 
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