The Taiwanese Economy in May 2021

Different types of variant virus are causing impacts on the UK, Japan, and many other economies including countries having rather high vaccination rate, namely, advanced economies. Lifting lockdowns have indeed picked up market demands and helped expedite processes of recovery. However, it is still uncertain whether easing the containment measures may result in a virtuous or vicious cycle. It is certain that the global demand is strong for the time being, whereas it is strong enough to kindle Taiwan's export engine. The government's 3rd level alert measure has hindered the growth of internal demand in spite of the growing external demand. “Warm on the outside and cold on the inside” would be an epitome of the state of Taiwan's economy.

Taiwan's exports in May 2021 increased by 38.56% compared with the same month of 2020, the highest rate since August 2010, thanks to a strong market demand for ICT parts and components and other merchandises in addition to much lower base effect due to the COVID-19 impacts. Regarding imports, Taiwan's imports in May 2021 increased by 40.87% compared with imports in May of 2020; lower base effect would also be the main cause. On the cumulative basis, Taiwan's exports and imports from January 1st till the end of May in 2021 gave a trade surplus as at US$ 26.67 billion or increase by 58.34% y-o-y.

Taiwan's consumer price index (CPI) increased by 2.48% in May 2021 compared with the same month of previous year, the highest rate since March 2013. The core inflation rate excluding prices of the energy and food increased by 1.58% in May 2021. In addition, the wholesale price index (WPI) increased by 11.33% in May 2021 on the year-on-year basis, the highest rate since August 2008.

As for exchange rate, the NTD went stronger due to the relatively weaker USD. The NTD/USD stood at 27.66 in late May 2021, the strongest for the past 24 years, indicating a 1.05% appreciation. Regarding the interest rate, it remained low and steady in May 2021 due to the continued loose monetary operations by the CBC with respect to the most recent CPI reading; the lowest and highest over-night call rate in May 2021 stood at 0.079% and 0.081% respectively.

Business Outlook

The portion of manufacturing firms who perceived business were better than expected in the target month was 34.3% or decreased by 5.2 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 21.6% or increased by 8.8 percentage points than 12.8% perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 44.1% or decreased by 3.6 percentage points compared with 47.7% perceiving constant business in the previous month. Overall, manufacturing firms perceived the business in the target month was rather pessimistic compared with the previous month.

In addition, the portion of manufacturers who perceived business would be better in the next six months was 36.8% in the target month or decreased by 3.2 percentage points than 40.0% feeling more optimistic about the future in the previous month. The portion of firms who perceived the economic outlook would be worsening was 12.8% or increased by 5.0 percentage points compared with 7.8% 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 50.5% or decreased by 1.7 percentage points compared with 52.2% feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was also somewhat pessimistic compared with the previous month.

The manufacturing composite indicator for May 2021 adjusted for seasonal factors on moving average, saw a mild downward correction, and from a revision of as 106.52 points in April 2021 moved down somewhat to 105.24 points in May 2021. Figure 1 shows a slight decrease of 1.28 points.

The TIER service sector composite indicator for May 2021 adjusted for seasonal factors on moving average also saw a downward correlation, and from a revision of as 100.49 points in April 2021 moved down to 98.25 points. Figure 1 shows a decrease of 2.24 points, the second month of consecutive decrease.

In addition, the TIER Construction Sector Composite Indicator for May 2021 adjusted for the seasonal factors on moving average saw a downward correlation as well, and from a revision of 106.01 points in April 2021 went down to 102.73 points in May 2021. Figure 1 shows a decrease of 3.28 points, the third month of consecutive decrease.

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:
Printing, Motor Vehicles Manufacturing, Retail Sales, Restaurants and Hotels, Securities.
　
● 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:
Transport Equipment Manufacturing and Repairing, Banks, Insurance.
　
● 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:
Wood and Bamboo Products Manufacturing, Motorcycles Manufacturing, Motorcycles Parts Manufacturing.
　
● 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:
Prepared Animal Feeds Manufacturing, Leather, Fur and Allied Product Manufacturing, Industrial Chemicals, Petrochemicals Manufacturing, Plastics and Rubber Raw Materials, Non-metallic Mineral Products Manufacturing, Glass and Glass Products Manufacturing, Cement and Cement Products Manufacturing, Electronic Machinery, Audio and Video Electronic Products Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Bicycles Manufacturing, Wholesale.
　
● 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, Edible Oil Manufacturing, Flour Milling and Grain Husking, Textiles Mills, Yarn Spinning Mills, Chemical Products Manufacturing, Rubber Products Manufacturing, Plastic Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Motor Parts Manufacturing, Basic Civil Structure Construction.
　
● Manufacturers' sentiments that have improved in the May survey and is expected to deteriorate over the next six months include:
Real Estate Investment.
　
● Manufacturers' sentiments that have improved in the May survey and is expected to remain upbeat over the next six months include:
Frozen Food Manufacturing, Soft Drink Manufacturing , Apparel, Clothing Accessories and Other Textile Product Manufacturing, Paper Manufacturing, Petroleum and Coal Products Manufacturing, Iron and Steel Basic Industries, Metal Structure and Architectural Components Manufacturing, Machinery and Equipment Manufacturing and Repairing, Cutlery and Tools Manufacturing, Industrial Machinery, Electrical Machinery, Electrical Machinery, Supplies Manufacturing and Repairing, Electric Wires and Cables Manufacturing, Communications Equipment and Apparatus Manufacturing, Electronic Parts and Components Manufacturing, Bicycles Parts Manufacturing, Precision Instruments Manufacturing, Education and Entertainment Articles Manufacturing, Telecommunication Services, Transportation and Storage.
　
● Manufacturers' sentiments that have improved in the May survey and the trend is expected to continue for the next six months include:
Food, Fabric Mills, Man-made Fibers Manufacturing, Electrical Appliances and Housewares Manufacturing, Construction.