The Taiwanese Economy in May 2017

The Bureau of Economic Analysis (BEA) adjusted its Q1 estimate of the US GDP growth upward by 0.1 percentage points. In addition, the Eurostats also ascendingly revised its Q1 estimate of Euro Zone and European Union as a whole. The revisions suggest that continuing global economic recovery paves the way for stronger external demand. However, Taiwan's growth of recovery may turn tepid according to the composite indicators recently issued by the Taiwan Institute of Economic Research (TIER). Despite the fact that Taiwan's exports and export orders continue to grow, the increasing costs of raw materials have made industries more conservative in viewing the business conditions in the near future.
Taiwan's exports in May 2017 increased by 8.43% compared with the same month of 2016. Regarding imports, Taiwan's imports in May 2017 increased by 10.2% compared with imports in May 2016. From January 1st till the end of May this year, Taiwan's exports and imports gave a trade surplus of US$ 17.02 billion or a decrease by 17.15% on a y-o-y basis.
Taiwan's consumer price index (CPI) went up by 0.59% in May 2017 compared with the same month of previous year. The current inflation rate has gradually moved back up compared with previous months. The core inflation rate stood at a relatively more heated ratio as 1.11% in May, 2017. In addition, the wholesale price index (WPI) decreased by 1.91% in May 2017 on the year-on-year basis.
As for exchange rate, the NTD went somewhat stronger due to the relatively weaker USD as well as flowing-in capital in May 2017 due to the issue of common reporting standards (CRS) by the OECD. The USD/NTD stood at 30.102 in late May 2017 indicating a 0.38% appreciation. However, the attention must be paid to the Fed's future rate hike in addition to its intention to unwind the balance sheet. Regarding the interest rate, it remained low and steady in May 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 25.8% or increased by 13.4% 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 25.6% or decreased by 15.2 percentage points than 40.8% perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 48.6% or increased by 1.7 percentage points compared with 46.9% perceiving constant business in the previous month. Overall, manufacturing firms perceived the business in the target month was optimistic.
In addition, the portion of manufacturers who perceived business would be better in the next six months was 33.1% in the target month or decreased by 2.8 percentage points than 35.90% feeling more optimistic about the future in the previous month. The portion of firms who perceived the economic outlook would be worsening was 19.8% or increased by 5.7 percentage points compared with 14.1% 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 47.0% or decreased by 3.1 percentage points compared with 50.1% feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was neutral to somewhat pessimistic.
The manufacturing composite indicator for May, 2017 adjusted for seasonal factors on moving average, saw a downward correction, and from a revision of as 95.73 points in April moved down to 95.21 points that would be a 5-month consecutive decline. Figure 1 shows a decrease of 0.52 points.
The TIER service sector composite indicator for May 2017 adjusted for seasonal factors on moving average, saw an upward correlation, and from a revision of as 92.40 points in April moved up to 94.84 points that would be a 3-month consecutive increase. Figure 1 shows an increase of 2.44 points.
In addition, the TIER Construction Sector Composite Indicator for May 2017 adjusted for seasonal factors on moving average saw a downward correction, and from a revision of 87.98 points in April went down to 87.94 points. Figure 1 shows a decrease of 0.04 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 May survey and are expected to deteriorate over the next six months include:
　 None.
　
● Manufacturers' sentiments that have been in decline in the May survey, but are expected to improve over the next six months include:
　 None.
　
● Manufacturers' sentiments that have been in decline in the May survey and are expected to remain sluggish over the next six months include:
　 Edible Oil Manufacturing, Flour Milling and Grain Husking , Yarn Spinning Mills, Fabric Mills , Metal dies, Electrical Machinery, Electrical Appliances and Housewares Manufacturing, Construction.
　
● 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:
　 Petroleum and Coal Products Manufacturing, Plastic Products Manufacturing, Glass and Glass Products Manufacturing, Iron and Steel Basic Industries.
　
● 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, Non-metallic Mineral Products Manufacturing, Cement and Cement Products Manufacturing, Electric Wires and Cables Manufacturing, Electronic Machinery, Communications Equipment and Apparatus Manufacturing, Bicycles Parts Manufacturing, Education and Entertainment Articles Manufacturing.
　
● 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, Frozen Food Manufacturing, Soft Drink Manufacturing , Prepared Animal Feeds Manufacturing, Textiles Mills, Apparel, Clothing Accessories and Other Textile Product Manufacturing , Leather, Fur and Allied Product Manufacturing, Wood and Bamboo Products Manufacturing, Industrial Chemicals, Man-made Fibers Manufacturing, Chemical Products Manufacturing, Rubber Products Manufacturing, Fabricated Metal Products Manufacturing, Machinery and Equipment Manufacturing and Repairing, Cutlery and tools Manufacturing, Industrial Machinery, Electrical Machinery, Supplies Manufacturing and Repairing, Transport Equipment Manufacturing and Repairing, Motor Vehicles Manufacturing, Motor Parts Manufacturing, Retail sales, Wholesale, Restaurants and hotels, 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:
　 Paper Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Electronic Parts and Components Manufacturing, Motorcycles Manufacturing, Precision Instruments Manufacturing, Banks, Securities.
　
● Manufacturers' sentiments that have improved in the May survey and the trend is expected to continue for the next six months include:
Food, Printing, Plastics and rubber raw materials, Screw, Nut Manufacturing, Metal Structure and Architectural Components Manufacturing, Audio and Video Electronic Products Manufacturing, Motorcycles Parts Manufacturing, Bicycles Manufacturing, Basic civil structure construction, Real estate investment, Insurance.