The Taiwanese Economy in July 2019

The trade tension between the US and China has further escalated, whereas a talk will be conducted or cancelled in September is unknown for the time being. In a nutshell, a truce or a potential deal between them is still very uncertain. Trade diversion effects provide pros and cons to the economy of Taiwan. Its exports to China and other supply chain partners have been decreasing, but they to the US market have been increasing. In addition, the homecoming Taiwanese investments are helping pick up the growth of fixed capital formation. It is very obvious that the negative impacts are somewhat balanced by the new-fangled benefits.
Taiwan's exports in July 2019 decreased by 0.53% compared with the same month of 2018, ended a very brief one-month increase. However, the exports to the US market increased by significantly 21.7% y-o-y in July. Regarding imports, Taiwan's imports in July 2019 decreased by 5.42% compared with imports in July of 2018. On the cumulated basis, exports and imports from January till the end of July this year gave a trade surplus of US$ 23.49 billion or decreased by 15.73% on a y-o-y basis.
Taiwan's consumer price index (CPI) increased by only 0.40% in July 2019 compared with the same month of previous year due to the supply of vegetables and fruits was rather more sufficient in July than June helping stabilize the price level. The core inflation rate excluding prices of the energy and food grew by 0.34% in July 2019. In addition, the wholesale price index (WPI) moved down by 3.42% in July 2019 on the year-on-year basis due to the fact that commodity prices dropped significantly.
As for exchange rate, the NTD similar to all other major currencies in the world went somewhat weaker due to the relatively stronger USD, despite the Fed cut the federal funds rate by 0.25 percentage points in July 2019. The NTD/USD stood at 31.096 in late July 2019 indicating a 0.08% depreciation. Regarding the interest rate, it remained low and steady in July 2019 due to the continued loose monetary operations by the CBC with respect to the most recent CPI reading and potential global uncertainties; the lowest and highest over-night call rate in July 2019 stood at 0.179% and 0.193% respectively.

Business Outlook

The portion of manufacturing firms who perceived business were better than expected in the target month was 30.8% or increased by 6.0 percentage points 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 22.5% or decreased by 10.8 percentage points than 33.3% perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 46.8% or increased by 4.9 percentage points compared with 41.9% perceiving constant business in the previous month. Overall, manufacturing firms perceived the business in the target month was more optimistic than the previous month.
In addition, the portion of manufacturers who perceived business would be better in the next six months was 22.0% in the target month or decreased by 3.3 percentage points than 25.3% feeling more optimistic about the future in the previous month. The portion of firms who perceived the economic outlook would be worsening was 23.9% or increased by 5.5 percentage points compared with 18.4% 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 54.1% or decreased by 2.2 percentage points compared with 56.3% feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was somewhat more pessimistic compared with the previous month.
The manufacturing composite indicator for July 2019 adjusted for seasonal factors on moving average, saw an upward correction, and from a revision of as 93.07 points in June 2019 moved up to 95.30 points. Figure 1 shows an increase of 2.23 points, the first bounce-back after three-month of consecutive decline.
The TIER service sector composite indicator for July 2019 adjusted for seasonal factors on moving average, saw a downward correlation, and from a revision of as 92.35 points in June 2019 moved down to 92.05 points. Figure 1 shows a decrease of 0.30 points, the second month of continuous dip.
In addition, the TIER Construction Sector Composite Indicator for July 2019 adjusted for seasonal factors on moving average, saw an upward correction, and from a revision of 96.86 points in June 2019 went up to 97.83 points. Figure 1 shows an increase of 0.97 points, the third month of increase.

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 July survey and are expected to deteriorate over the next six months include:
Machinery and Equipment Manufacturing and Repairing, Cutlery and Tools Manufacturing, Industrial Machinery.
　
● Manufacturers' sentiments that have been in decline in the July survey, but are expected to improve over the next six months include:
None.
　
● Manufacturers' sentiments that have been in decline in the July survey and are expected to remain sluggish over the next six months include:
Yarn Spinning Mills, Man-made Fibers Manufacturing, Metal Structure and Architectural Components Manufacturing, Electrical Machinery, Electrical Machinery, Supplies Manufacturing and Repairing.
　
● Manufacturers surveyed who felt the July outlook was the same as the previous month, but the outlook is expected to exacerbate over the next six months include:
Porcelain and Ceramic Products Manufacturing, Electric Wires and Cables Manufacturing, Motor Parts Manufacturing, Wholesale.
　
● Manufacturers surveyed who felt the July outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Apparel, Clothing Accessories and Other Textile Product Manufacturing , Non-metallic Mineral Products Manufacturing, Cement and Cement Products Manufacturing, Communications Equipment and Apparatus Manufacturing, Electronic Parts and Components Manufacturing.
　
● Manufacturers surveyed who felt the July outlook was the same as the previous month and the trend is expected to continue for the next six months include:
Manufacturing, Slaughtering, Soft Drink Manufacturing , Prepared Animal Feeds Manufacturing, Textiles Mills, Fabric Mills , Wood and Bamboo Products Manufacturing, Paper Manufacturing, Industrial Chemicals, Plastics and Rubber Raw Materials, Petroleum and Coal Products Manufacturing, Rubber Products Manufacturing, Iron and Steel Basic Industries, Fabricated Metal Products Manufacturing, Metal Dies, Electronic Machinery, Audio and Video Electronic Products Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Precision Instruments Manufacturing, Construction, Basic Civil Structure Construction, Telecommunication Services, Transportation and Storage.
　
● Manufacturers' sentiments that have improved in the July survey and is expected to deteriorate over the next six months include:
Leather, Fur and Allied Product Manufacturing, Transport Equipment Manufacturing and Repairing, Motor Vehicles Manufacturing, Motorcycles Parts Manufacturing, Restaurants and Hotels.
　
● Manufacturers' sentiments that have improved in the July survey and is expected to remain upbeat over the next six months include:
Bicycles Manufacturing, Bicycles Parts Manufacturing.
　
● Manufacturers' sentiments that have improved in the July 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 , Printing, Petrochemicals Manufacturing, Chemical Products Manufacturing, Plastic Products Manufacturing, Glass and Glass Products Manufacturing, Screw, Nut Manufacturing, Electrical Appliances and Housewares Manufacturing, Motorcycles Manufacturing, Education and Entertainment Articles Manufacturing, Real Estate Investment, Retail Sales, Banks, Securities, Insurance.