The Taiwanese Economy in July 2022

Advanced economies are still coping with inflationary pressures, and emerging markets are dealing with a serious recession of capital, which have been jointly hampering the global economic outlook. In view of the above situation, major international forecasting agencies have coincidentally revised down the economic growth rates of major economies. The Department of Statistics of the Ministry of Economic Affairs in Taiwan announced on August 22nd that the value of export orders in July was US$54.26 billion, a year-on-year decrease of 1.9%. The Department pointed out that although it is currently entering a “peak season” of new technology products, it is however facing a series of “black swan” such as resurgence pandemic, high-inflation shocks, power cuts in China, drought in Europe, and ongoing Russian-Ukrainian war. The Taiwan Institute of Economic Research (TIER) issued monthly composite indicators on August 25th. Its indicators suggest that Taiwan’s service and construction sectors have better prospects than the manufacturing sector for the time being. The manufacturing composite indicator for July 2022 adjusted for seasonal factors on moving average decreased by 1.09 points, a seven-month of consecutive decrease. However, the service industry has benefited from the slowdown of the local epidemic and coincides with the arrival of the peak summer season. As for the construction industry, it is about to enter the fourth phase of the forward-looking plan, so the outlook for the construction industry in the next six months will be regarded as improving.
Taiwan’s economic performance in external markets has so far still remained rather good. Taiwan’s exports in July 2022 increased significantly by 14.15% compared with the same month of 2021, the consecutive seventeen-month in double digit growth, as a result of a strong market demand for Taiwan’s ICT parts and components and other quality merchandises. Regarding imports, Taiwan’s imports in July 2022 increased by 19.42% compared with imports in July of 2021, also the consecutive seventeen -month in double digit growth. Taiwan’s exports and imports from January till the end of July 2022 gave a trade surplus as at US$ 32.7 billion or decrease by 12.2% year-on-year due to more costly in imports of commodities.
Taiwan’s consumer price index (CPI) increased by 3.36% in July 2022 compared with the same month of previous year, which would be 0.23 percentage points lower than the inflation rate of previous month. The core inflation rate excluding prices of the energy and food increased by 2.73% in July 2022, which would be 0.04 percentage points lower than the core inflation rate in June 2022. In addition, the wholesale price index (WPI) increased by 13.11% in July 2022 on the year-on-year basis, the consecutive sixteen-month in double digit growth. The pressure of surging input costs is still less serious compared with the previous month. However, some producers may still need to transfer the cost to consumers to break even.
As for exchange rate, the NTD went weaker due to the relative trend of USD exchange rate in July 2022. As the US Federal Reserve’s upcoming policy is relatively more hawkish in order to cope with the inflation rate standing at 8.5% in July 2022. The NTD/USD stood at 29.938 in late July 2022, indicating a 0.71% depreciation. The Taiwan central bank (CBC) raised its key interest rates by 0.125 percentage points on 17th June 2022. The attention is on CBC’s next meeting in September. Regarding the over-night call rate; the lowest and highest rate in July 2022 stood at 0.306% and 0.311% respectively.

Business Survey Outcomes

The portion of manufacturing firms who perceived business were better than expected in the target month was 16.8% or decreased by 3.7 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 43.8% or increased by 1.1 percentage points than 42.7% of respondents perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 39.4% or increased by 2.6 percentage points than the ratio of previous month’s respondents perceiving constant business. Overall, manufacturing firms perceived the business in the target month was somewhat more pessimistic about the business conditions compared with the previous month.
In addition, the portion of manufacturers who perceived business would be better in the next six months was 20.1% in the target month or increased by 1.6 percentage points than 18.5% of respondents feeling more optimistic about the near future in the previous month. The portion of firms who perceived the economic outlook would be worsening was 39.4% or increased by 3.0 percentage points compared with 36.4% of respondents feeling rather pessimistic about the near future in the previous month. The portion of manufacturing firms who perceived business remained constant in the next six months stood at 40.4% or decreased by 4.6 percentage points compared with 45% of respondents feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was as a result still pessimistic compared with the previous month.
As a result, the manufacturing composite indicator for July 2022 adjusted for seasonal factors on moving average, saw a downward correction, and from a revision of as 89.0 points in June moved down to 87.91 points in July 2022. Figure 1 shows a decrease of 1.09 points, a seven-month of consecutive decrease.
Moreover, the TIER service sector composite indicator for July 2022 on moving average saw an upward correlation, and from a revision of as 93.86 points in June moved up to 96.41 points in July 2022. Figure 1 shows an increase of 2.55 points, the first mount after a one-month dip.
Last but not the least, the TIER construction sector composite Indicator for July 2022 adjusted for the seasonal factors on moving average also saw an upward correlation, and from a revision of 92.9 points in June went up to 96.74 points in July 2022. Figure 1 shows an increase of 3.84 points, the first mount after a one-month dip as well.

Analyses and Outlook of 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:
Textiles Mills, Yarn Spinning Mills, Paper Manufacturing, Industrial Chemicals, Petrochemicals Manufacturing, Man-made Fibers Manufacturing, Rubber Products Manufacturing, Iron and Steel Basic Industries, Cutlery and Tools Manufacturing, Data Storage Media Units Manufacturing and Reproducing.

● Manufacturers’ sentiments that have been in decline in the July survey, but are expected to improve over the next six months include:
Insurance.

● Manufacturers’ sentiments that have been in decline in the July survey and are expected to remain sluggish over the next six months include:
Plastics and Rubber Raw Materials, Petroleum and Coal Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Screw, Nut Manufacturing, Electrical Machinery, Electrical Machinery, Supplies Manufacturing and Repairing, Electric Wires and Cables Manufacturing, Education and Entertainment Articles Manufacturing, Construction, Real Estate Investment, Wholesale.

● 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:
Fabric Mills , Wood and Bamboo Products Manufacturing, Plastic Products Manufacturing, Glass and Glass 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:
Food, Edible Oil Manufacturing, Flour Milling and Grain Husking, Printing, Metal Dies, Metal Structure and Architectural Components Manufacturing, Telecommunication Services.

● 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, Chemical Products Manufacturing, Non-metallic Mineral Products Manufacturing, Cement and Cement Products Manufacturing, Fabricated Metal Products Manufacturing, Electrical Appliances and Housewares Manufacturing, Electronic Machinery, Audio and Video Electronic Products Manufacturing, Electronic Parts and Components Manufacturing, Motorcycles Parts Manufacturing, Basic Civil Structure Construction, Securities, Transportation and Storage.

● Manufacturers’ sentiments that have improved in the July survey and is expected to deteriorate over the next six months include:
Apparel, Clothing Accessories and Other Textile Product Manufacturing, Leather, Fur and Allied Product Manufacturing, Machinery and Equipment Manufacturing and Repairing, Industrial Machinery.

● Manufacturers’ sentiments that have improved in the July survey and is expected to remain upbeat over the next six months include:
Frozen Food Manufacturing, Soft Drink Manufacturing, Communications Equipment and Apparatus Manufacturing, Motor Parts Manufacturing, Bicycles Manufacturing, Bicycles Parts Manufacturing, Precision Instruments Manufacturing, Retail Sales, Restaurants and Hotels.

● Manufacturers’ sentiments that have improved in the July survey and the trend is expected to continue for the next six months include:
Transport Equipment Manufacturing and Repairing, Motor Vehicles Manufacturing, Motorcycles Manufacturing, Banks.