The Taiwanese Economy in July 2017

Major economies around the world, the US, Europe, Japan, and China all had a very steady and solid second quarter performance this year adding fuel to global economic recovery. As the growing demand continues, production and supply value chain will also operate as usual. Heated up by strong growth in exports, the Taiwan Institute of Economic Research (TIER) issued manufacturing composite indicator increases for the second month consecutively. Insurance and wholesale sectors were both optimistic in July, whereas the other sectors viewed the near future more neutral giving TIER's service composite indicator a slight drop after 4- monthly consecutive mount. Finally, the construction composite indicator also rises thanks to expanding scales and the due completion effect of public construction projects with respect to the government's stimulus packages.
Taiwan's exports in July 2017 increased by 12.51% compared with the same month of 2016 that would be the second month of double digit growth in exports. Regarding imports, Taiwan's imports in July 2017 increased by 6.49% compared with imports in July 2016. Exports and imports grew by 12.52% and 14.93% y-o-y respectively from January 1st till the end of July this year, Taiwan's exports and imports gave a trade surplus of US$ 28.19 billion or an increase by 1.45% on a y-o-y basis during this period.
Taiwan's consumer price index (CPI) went up by 0.77% in July 2017 compared with the same month of previous year. The current inflation rate has gradually moved back down compared with previous months. The core inflation rate stood at a relatively higher ratio as 0.92% in July, 2017. In addition, the wholesale price index (WPI) decreased by 0.73% in July 2017 on the year-on-year basis. The decrease in WPI subsides due to a tepid rebound of crude prices and not as strong as earlier NTD.
As for exchange rate, the NTD went somewhat stronger due to the relatively stronger USD, as the Fed has sent out certain dovish messages. The USD/NTD stood at 30.227 in late July 2017 indicating a 0.69% appreciation. However, the attention must be also paid to the Fed's future rate hike in addition to its intention to unwind the US$ 4.5 trillion balance sheet in the near future. Regarding the interest rate, it remained low and steady in July 2017 due to the continued loose monetary operations by the CBC with respect to the most recent CPI reading.

Business Outlook

The portion of manufacturing firms who perceived business were better than expected in the target month was 26.7% or decreased by 7.2% 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 31.1% or increased by 6.8 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 42.2% or increased by 0.4 percentage points compared with 41.8% 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 30.3% in the target month or decreased by 5.2 percentage points than 35.5% feeling more optimistic about the future in the previous month. The portion of firms who perceived the economic outlook would be worsening was 11.7% or decreased by 7.7 percentage points compared with 19.4% 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 58.0% or increased by 12.9 percentage points compared with 45.1% feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was somewhat neutral.
The manufacturing composite indicator for July, 2017 adjusted for seasonal factors on moving average, saw an upward correction, and from a revision of as 96.58 points in June moved up to 100.52 points in July that would be the second month consecutive increase. Figure 1 shows an increase of 3.94 points.
The TIER service sector composite indicator for July 2017 adjusted for seasonal factors on moving average, saw a downward correlation, and from a revision of as 95.51 points in June moved down to 95.02 points in July that would be the first decline after 4-month consecutive increase. Figure 1 shows a drop of 0.49 points.
In addition, the TIER Construction Sector Composite Indicator for July 2017 adjusted for seasonal factors on moving average also saw an upward correction, and from a revision of 90.37 points in June went up to 96.75 points in July. Figure 1 shows an increase of 6.38 points.

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:
Plastic Products Manufacturing.
　
● 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:
Food, Frozen Food Manufacturing, Edible Oil Manufacturing, Flour Milling and Grain Husking , Textiles Mills, Leather, Fur and Allied Product Manufacturing, Electrical Machinery, Supplies Manufacturing and Repairing, Communications Equipment and Apparatus Manufacturing, Motor Parts Manufacturing, Motorcycles Parts Manufacturing, Construction, Basic civil structure construction, Real estate investment, Restaurants and hotels.
　
● 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, Audio and Video Electronic Products Manufacturing.
　
● 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:
Plastics and rubber raw materials, Glass and Glass Products Manufacturing, Electronic Machinery, Data Storage Media Units Manufacturing and Reproducing, Bicycles Parts 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, Prepared Animal Feeds Manufacturing, Yarn Spinning Mills, Fabric Mills , Apparel, Clothing Accessories and Other Textile Product Manufacturing , Wood and Bamboo Products Manufacturing, Printing, Industrial Chemicals, Petrochemicals Manufacturing, Man-made Fibers Manufacturing, Chemical Products Manufacturing, Rubber 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, Metal Structure and Architectural Components Manufacturing, Electrical Machinery, Transport Equipment Manufacturing and Repairing, Motor Vehicles Manufacturing, Motorcycles Manufacturing, Retail sales, Wholesale, Banks, Telecommunication services.
　
● Manufacturers' sentiments that have improved in the July survey and is expected to deteriorate over the next six months include:
Petroleum and Coal Products Manufacturing, Bicycles Manufacturing.
　
● Manufacturers' sentiments that have improved in the July survey and is expected to remain upbeat over the next six months include:
Soft Drink Manufacturing, Paper Manufacturing, Machinery and Equipment Manufacturing and Repairing, Cutlery and tools Manufacturing, Industrial Machinery, Electronic Parts and Components Manufacturing, Precision Instruments Manufacturing, Insurance, Transportation and storage.
　
● Manufacturers' sentiments that have improved in the July survey and the trend is expected to continue for the next six months include:
Electric Wires and Cables Manufacturing, Electrical Appliances and Housewares Manufacturing, Education and Entertainment Articles Manufacturing, Securities.