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The Taiwanese Economy in June 2022
Affected by the stalemate of the Russian-Ukrainian war, the prices of international energy and food have been pushed up, and the global inflation pressure has continued to rise. Major central banks have launched a cycle of raising interest rates and tightening monetary policies to ease the pressure of rising prices. The U.S. Federal Reserve’s hike in interest rates and shrinking its balance sheet has put pressure on global financial asset prices. The stock and bond markets of major economies have been revised downwards. Emerging markets are also facing challenges such as capital outflows and currency depreciation. In addition, high prices have affected the real purchasing power of consumers, and the fiscal stimulus is far below the level of the past two years, which has also slowed down market demand. Major international forecasting agencies have revised down the global economic and trade growth performance in 2022 several times this year. On Taiwan’s domestic front, the trade continued to grow at double digits in the first half of this year, benefiting from the continued strong demand for emerging technology applications, the gradual improvement in the shortage of materials in the supply chain and the increase in product prices. Since the beginning of this year, due to factors such as rising prices, sharp corrections in the financial market, and the rise of the COVID confirmed cases, the performance of private consumption has been weaker than originally expected. According to the latest forecast of the Taiwan Institute of Economic Research (TIER), the GDP growth rate in 2022 standing at 3.81%, which is revised down by 0.29 percentage points from the forecast in April. According to the survey results of TIER, the business composite indicators of the manufacturing, services and construction declined simultaneously in June.
Taiwan’s economic performance in external markets has so far still remained rather good. Taiwan’s exports in June 2022 increased significantly by 15.16% compared with the same month of 2021, the consecutive sixteen-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 June 2022 increased by 19.16% compared with imports in June of 2021, also the consecutive sixteen-month in double digit growth. Taiwan’s exports and imports from January till the end of June 2022 gave a trade surplus as at US$ 27.69 billion or decrease by 11.71% year-on-year due to more costly in imports of commodities.
Taiwan’s consumer price index (CPI) increased by 3.59% in June 2022 compared with the same month of previous year, which would be 0.2 percentage points higher than the inflation rate of previous month. The core inflation rate excluding prices of the energy and food increased by 2.77% in June 2022, which would be 0.17 percentage points higher than the core inflation rate in May 2022. In addition, the wholesale price index (WPI) increased by 16.45% in June 2022 on the year-on-year basis, the consecutive fifteen-month in double digit growth. The pressure of surging input costs is still mounting meaning the producers need to transfer the cost to consumers eventually, if the imported inflation problem is not yet resolved soon.
As for exchange rate, the NTD went weaker due to the relative trend of USD exchange rate in June 2022. As the US Federal Reserve’s upcoming policy is relatively more hawkish in order to cope with the inflation rate standing at 9.1% in June 2022. The NTD/USD stood at 29.726 in late June 2022, indicating a 2.27% depreciation. The Taiwan central bank (CBC) raised its key interest rates by 0.125 percentage points on 17th June 2022. Regarding the over-night call rate; the lowest and highest rate in June 2022 stood at 0.180% and 0.316% respectively.
Business Survey Outcomes
The portion of manufacturing firms who perceived business were better than expected in the target month was 15.5% or decreased by 5.7 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 44.1% or increased by 11.9 percentage points than 32.2% of respondents perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 40.4% or decreased by 6.1 percentage points than the ratio of previous month’s respondents perceiving constant business. Overall, manufacturing firms perceived the business in the target month was 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 17.0% in the target month or decreased by 6.5 percentage points than 23.5% 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 37.2% or increased by 10.2 percentage points compared with 27.0% 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 45.8% or decreased by 3.7 percentage points compared with 49.5% 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 June 2022 adjusted for seasonal factors on moving average, saw a downward correction, and from a revision of as 92.59 points in May moved down to 88.30 points in June 2022. Figure 1 shows a decrease of 4.29 points, a six-month of consecutive decrease.
Moreover, the TIER service sector composite indicator for June 2022 adjusted for seasonal factors on moving average saw a downward correlation, and from a revision of as 95.02 points in May moved down to 94.15 points in June 2022. Figure 1 shows a decrease of 0.87 points, the first dip after a three-month of consecutive increase.
Last but not the least, the TIER construction sector composite Indicator for June 2022 adjusted for the seasonal factors on moving average also saw a downward correlation, and from a revision of 96.07 points in May went down to 92.92 points in June 2022. Figure 1 shows a decrease of 3.15 points, the first dip after a one-month increase.
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 June survey and are expected to deteriorate over the next six months include:
Yarn Spinning Mills, Fabric Mills, Plastics and Rubber Raw Materials, Man-made Fibers Manufacturing, Iron and Steel Basic Industries, Cutlery and Tools Manufacturing, Securities.
● Manufacturers’ sentiments that have been in decline in the June survey, but are expected to improve over the next six months include:
Petrochemicals Manufacturing.
● Manufacturers’ sentiments that have been in decline in the June survey and are expected to remain sluggish over the next six months include:
Industrial Chemicals, Plastic Products Manufacturing, Electric Wires and Cables Manufacturing, Education and Entertainment Articles Manufacturing, Construction, Real Estate Investment.
● Manufacturers surveyed who felt the June outlook was the same as the previous month, but the outlook is expected to exacerbate over the next six months include:
Textiles Mills, Wood and Bamboo Products Manufacturing, Chemical Products Manufacturing, Rubber Products Manufacturing, Glass and Glass Products Manufacturing.
● Manufacturers surveyed who felt the June outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Food, Metal Structure and Architectural Components Manufacturing, Banks, Telecommunication Services.
● Manufacturers surveyed who felt the June outlook was the same as the previous month and the trend is expected to continue for the next six months include:
Manufacturing, Frozen Food Manufacturing, Prepared Animal Feeds Manufacturing, Paper Manufacturing, Petroleum and Coal Products Manufacturing, Non-metallic Mineral Products Manufacturing, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Electrical Machinery, Electrical Appliances and Housewares Manufacturing, Electronic Machinery, Electronic Parts and Components Manufacturing, Basic Civil Structure Construction, Transportation and Storage.
● Manufacturers’ sentiments that have improved in the June 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, Motorcycles Manufacturing.
● Manufacturers’ sentiments that have improved in the June survey and is expected to remain upbeat over the next six months include:
Edible Oil Manufacturing, Flour Milling and Grain Husking , Soft Drink Manufacturing , Printing, Communications Equipment and Apparatus Manufacturing, Motor Parts Manufacturing, Motorcycles Parts Manufacturing, Bicycles Manufacturing, Bicycles Parts Manufacturing, Precision Instruments Manufacturing, Retail Sales, Wholesale, Restaurants and Hotels, Insurance.
● Manufacturers’ sentiments that have improved in the June survey and the trend is expected to continue for the next six months include:
Slaughtering, Porcelain and Ceramic Products Manufacturing, Cement and Cement Products Manufacturing, Electrical Machinery, Supplies Manufacturing and Repairing, Audio and Video Electronic Products Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Transport Equipment Manufacturing and Repairing, Motor Vehicles Manufacturing.
TIER Forecast (issued on 25th July, 2022.)
(NT$100 million, Chained (2016) Dollars)
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