The Taiwanese Economy in June 2023

Observing the recent domestic and international economic situations, it’s evident that the global economic recovery momentum remains fragile. Coupled with persistent core inflation pressures, even though major central banks are nearing the end of their interest rate hike cycles, economies like the US and Europe are expected to maintain high interest rates for some time. The previous global interest rate increases have increasingly impacted the real estate and financial markets, leading to signs of stress in the financial markets.
On Taiwan’s domestic front, both manufacturing exports and foreign export orders have declined compared to the previous month, resulting in a significantly higher proportion of manufacturers being pessimistic about the target month’s economic performance than optimistic. However, the service industry has benefited from a strong stock market performance, which is encouraging for financial-related service industries’ outlook on the current month’s economic performance.
As for the updated macroeconomic forecast by Taiwan Economic Research Institute (TIER), despite robust private consumption momentum, the first half of the year saw constrained export growth and manufacturer inventory adjustments due to sluggish global demand. This has also led to a cautious approach towards private investment. Looking at recent data on Taiwan's exports, foreign export orders, manufacturers' imports of capital equipment, and manufacturing production index, these indicators have continued to show a declining trend without significant improvement. Consequently, the latest forecast indicates that Taiwan’s economy in 2023 will experience a cool internal environment amid the external challenges. The GDP trend is expected to gradually improve throughout the year. However, given the weaker economic growth in the first half of the year than anticipated and the numerous uncertain factors influencing the economy, the prediction for Taiwan’s domestic economic growth rate in 2023 is revised down by 0.65 percentage point to 1.66%, compared to the previous forecast.
In terms of foreign trade, due to the still weak global economic demand, Taiwan’s exports in June 2023 decreased by 23.38% compared with the same month of 2022, the consecutive ten-month decrease. Regarding imports, Taiwan’s imports in June 2023 decreased by 29.91% compared with imports in June of 2022. Taiwan’s exports and imports from the beginning of this year till the end of June 2023 gave a trade surplus of US$ 26.458 billion or decreased by 1.79% year-on-year.
Taiwan’s consumer price index (CPI) increased by 1.75% in June 2023 compared with the same month of previous year, or 0.27 percentage points lower than the inflation rate of previous month. The core inflation rate excluding prices of the energy and food increased by 2.61% in June 2023, which would be 0.03 percentage points higher than the core inflation rate in May 2023. In addition, the producer price index (PPI) decreased by 4.84% in June 2023 on the year-on-year basis, which would be 1.09 percentage points lower than the previous month caused by the fact that the global commodity prices have been significantly dropping.
As for exchange rate, the NTD went weaker due to the relative trend of USD exchange rate in June 2023. The NTD/USD stood at 31.135 in late June 2023, indicating a 1.19% depreciation. Regarding the over-night call rate; the highest and the lowest rate in June 2023 stood at 0.700% and 0.680% respectively with respect to the recent monetary policy by the central bank of Taiwan.

Business Survey Outcomes

The portion of manufacturing firms who perceived business were better than expected in the target month was 11.5% or decreased by 9.4 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 41.6% or increased by 12.9 percentage points than 28.7% of respondents perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 47.0% or decreased by 3.5 percentage points than the ratio of previous month’s respondents perceiving constant business. Overall, manufacturing firms perceived the business in the target month was more pessimistic compared with the previous month.
In addition, the portion of manufacturers who perceived business would be better in the next six months was 21.5% in the target month or decreased by 6.7 percentage points than 28.2% 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 29.3% or increased by 3.9 percentage points compared with 25.4% 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 49.2% or increased by 2.8 percentage points compared with 46.4% of respondents feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was still more pessimistic compared with the previous month.
As a result, the manufacturing composite indicator for June 2023 adjusted for seasonal factors on moving average, saw a downward correction, and from a revision of as 89.12 points in May 2023 moved down to 87.96 points in June 2023. Figure 1 shows a decrease of 1.16 points.
Moreover, the TIER service sector composite indicator for June 2023 on moving average also saw an upward correlation, and from a revision of as 99.19 points in May 2023 moved up to 99.36 points in June 2023. Figure 1 shows an increase of 0.17 points.
In addition, the TIER construction sector composite Indicator for June 2023 adjusted for the seasonal factors on moving average also saw an upward correlation, and from a revision of 93.47 points in May 2023 went up to 95.77 points in June 2023. Figure 1 shows an increase of 2.30 points.

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:
Wood and Bamboo Products Manufacturing, Cement and Cement Products Manufacturing, Machinery and Equipment Manufacturing and Repairing, Cutlery and Tools Manufacturing, Industrial Machinery, Motorcycles Parts Manufacturing, Bicycles Manufacturing, Bicycles Parts Manufacturing, Real Estate Investment.

● Manufacturers’ sentiments that have been in decline in the June survey, but are expected to improve over the next six months include:
Textiles Mills, Yarn Spinning Mills, Fabric Mills, Leather, Fur and Allied Product Manufacturing, Glass and Glass Products Manufacturing, Electric Wires and Cables Manufacturing, Audio and Video Electronic Products Manufacturing.

● Manufacturers’ sentiments that have been in decline in the June survey and are expected to remain sluggish over the next six months include:
Manufacturing, Industrial Chemicals, Petrochemicals Manufacturing, Man-made Fibers Manufacturing, Chemical Products Manufacturing, Petroleum and Coal Products Manufacturing, Plastic Products Manufacturing, Non-metallic Mineral Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Iron and Steel Basic Industries, Screw, Nut Manufacturing, Electronic Parts and Components Manufacturing, Precision Instruments Manufacturing, Education and Entertainment Articles Manufacturing.

● 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:
None.

● 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:
Paper Manufacturing, Printing, Metal Dies, Communications Equipment and Apparatus Manufacturing, Motor Parts Manufacturing, Basic Civil Structure Construction.

● 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:
Slaughtering, Prepared Animal Feeds Manufacturing, Plastics and Rubber Raw Materials, Rubber Products Manufacturing, Fabricated Metal Products Manufacturing, Electrical Machinery, Electrical Machinery, Supplies Manufacturing and Repairing, Electrical Appliances and Housewares Manufacturing, Electronic Machinery, Transport Equipment Manufacturing and Repairing, Motor Vehicles Manufacturing, Construction, Transportation and Storage.

● Manufacturers’ sentiments that have improved in the June survey and is expected to deteriorate over the next six months include:
None.

● Manufacturers’ sentiments that have improved in the June survey and is expected to remain upbeat over the next six months include:
Food, Frozen Food Manufacturing, Edible Oil Manufacturing, Flour Milling and Grain Husking, Soft Drink Manufacturing , Apparel, Clothing Accessories and Other Textile Product Manufacturing, Metal Structure and Architectural Components Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Motorcycles Manufacturing, Retail Sales, Wholesale, Restaurants and Hotels, Banks, Securities, Insurance, Telecommunication Services.

● Manufacturers’ sentiments that have improved in the June survey and the trend is expected to continue for the next six months include:
None.

TIER Forecast (issued on 25th July, 2023.)
(NT$100 million, Chained (2016) Dollars)