The Taiwanese Economy in September 2023

Observing the recent international economic situation, despite a gradual slowdown in global economic growth and continued contraction in manufacturing activities, the performance of major countries' manufacturing sectors has shown slight improvement. The US manufacturing Purchasing Managers’ Index (PMI) has been on the rise for three consecutive months. In Taiwan's manufacturing sector, several factors have contributed to this positive trend, including increased demand driven by new technology products, a stable outlook for traditional industries, and the impact of a lower base period. As a result, exports turned positive in September, and the year-on-year decline in the manufacturing production index narrowed compared to the previous month. However, the recovery in end-demand remains limited, and due to various global political and economic uncertainties, the manufacturing industry still holds a conservative outlook for the current month and the next six months. In Taiwan’s service industry, the peak season for summer vacations has passed, leading to relatively subdued performance in restaurants and tourism-related businesses. Additionally, the decrease in trading volume and stock prices on the Taiwan Stock Exchange in September has affected the performance of financial-related industries. As for the construction industry, while there has been a steady rebound in property market sentiment recently, frequent adjustments in housing policies introduce uncertainty, leading to a cautious outlook for the property market’s condition in the next six months.
According to the survey conducted by the Taiwan Institute of Economic Research (TIER), after model-based calculations, the Manufacturing Composite Indicator for September has shown a continuous upward trend for the third consecutive month. On the other hand, the Service Sector Composite Indicator continues to exhibit a declining trend, while the Construction Sector Composite Indicator has shifted to a slight decrease.
In terms of foreign trade, the global recovery in end-demand has been relatively subdued. However, due to emerging opportunities in fields like artificial intelligence and the boost in demand for new technology products, along with a lower comparison base period, exports turned positive in September, ending a continuous 12-month downward trend.
Among the main export products, exports in September were led by information and communication technology and audiovisual products, which saw a growth of 59.8%. Chemical products also rebounded from a -13.4% decline to a 10.3% growth. This improvement was attributed to increased demand for some petrochemical products due to rising oil prices and inventory restocking needs. Nevertheless, electronic components were still hindered by weak consumer demand, with the year-on-year growth rate improving from -11.2% to -4.3%.
On the import side, the demand for raw materials from manufacturers remained sluggish. However, a substantial increase in the import of consumer goods such as passenger cars and mobile phones led to a shift from negative to positive growth in consumer goods imports, reducing the year-on-year decline in imports to -12.2% for September.
In cumulative terms, exports for the first nine months of this year declined by 13.8% compared to the same period last year, while imports fell by 19.7%. In total, the trade surplus for January to September 2023 amounted to $53.86 billion, marking a growth of 35.3%.
In terms of prices, the impact of typhoons on fruit and vegetable prices resulted in a reversal in the year-on-year growth rate of fruit prices, surging from -8.30% in August to 8.46% in September. Vegetable prices maintained a high year-on-year growth rate, leading to an increase in the overall food category's year-on-year growth rate from 3.45% in August to 4.78% in September. This had an impact of 1.28 percentage points on the overall index, an increase of 0.37 percentage points compared to the previous month.
Additionally, rising international crude oil prices contributed to an increase in the year-on-year growth rate of the transportation and communication category, moving from 1.78% in August to 2.32% in September. This had an impact of 0.33 percentage points on the overall index, an increase of 0.09 percentage points compared to the previous month.
Despite the overall Consumer Price Index (CPI) increasing from 2.53% in the previous month to 2.93%, the year-on-year growth rate in the education and entertainment category showed a noticeable decline, causing the core CPI year-on-year growth rate to decrease from 2.57% in the previous month to 2.48%.
In the domestic financial market, the monetary market remained stable. In September 2023, the overnight interbank lending rate in the financial industry ranged from a high of 0.715% to a low of 0.680%, with a weighted average interest rate of 0.687%. This marked a 0.004 percentage point increase compared to the previous month and a 0.348 percentage point increase compared to the same month in 2022.
Regarding the stock market, despite the decisions made by the US Federal Reserve in line with market expectations, there was still an anticipation of a potential interest rate hike before the end of the year. This led to a rebound in U.S. bond yields, a correction in U.S. stocks, and subsequently, a drag on Taiwan's stock market performance. Foreign investors continued to sell, with net outflows exceeding NT$160 billion in September, marking the highest monthly outflow in nearly a year. As of the end of September, the Taiwan Weighted Index closed at 16,353.74 points, representing a 1.69% decline, with an average daily trading volume of NT$267.03 billion.
On the exchange rate front, the US Federal Reserve’s policy maintained a somewhat hawkish stance, and coupled with the significant foreign sell-off of Taiwan stocks and outflows, this resulted in a depreciation of the NT Dollar. At the end of the month, the exchange rate stood at 32.268 NT dollars per U.S. dollar, marking a depreciation of 1.28%.

Business Survey Outcomes

The proportion of manufacturing firms that perceived their business as better than expected in the target month was 16.1%, a decrease of 6.6 percentage points compared to respondents who perceived their business as better in the previous month. On the other hand, the proportion of those who perceived their business as worsening in the target month was 38.4%, an increase of 12.7 percentage points compared to the 25.7% of respondents who perceived their business as worsening in the previous month. Additionally, the proportion of manufacturing firms that perceived their business as remaining constant in the target month was 45.5%, which decreased by 6.1 percentage points compared to the ratio of respondents from the previous month who perceived their business as constant. Overall, manufacturing firms appeared to hold a somewhat more pessimistic outlook regarding their business.
Furthermore, in the target month, the segment of manufacturers who anticipated an improvement in their business over the next six months stood at 18.8%, representing a decrease of 3.3 percentage points compared to the 22.1% of respondents who were more optimistic about the near future in the previous month. Conversely, the portion of firms foreseeing a deteriorating economic outlook was 26.9%, marking an increase of 3.4 percentage points compared to the 23.5% of respondents who held a more pessimistic view of the near future in the previous month. Meanwhile, 54.3% of manufacturing firms perceived their business outlook as remaining constant in the next six months, showing a slight uptick of 0.1 percentage point compared to the 54.4% of respondents who maintained a neutral stance on the business outlook one month earlier. Overall, manufacturing firms appeared to hold a slightly more pessimistic view of the business outlook in the near future.
However, when converted into a moving average, the manufacturing composite indicator for September 2023, adjusted for seasonal factors, exhibited an upward correction. It rose from the revised figure of 92.63 points in August 2023 to 93.98 points in September 2023. As depicted in Figure 1, this represents an increase of 1.35 points.
Furthermore, the TIER service sector composite indicator for September 2023, when observed as a moving average, displayed a downward trend. It decreased from a revised value of 96.93 points in August 2023 to 92.48 points in September 2023. Figure 1 illustrates a decrease of 4.45 points.
Additionally, the TIER construction sector composite indicator for September 2023, adjusted for seasonal factors as a moving average, also exhibited a declining trend. It dropped from the revised figure of 101.60 points in August 2023 to 101.21 points in September 2023. Figure 1 shows a decrease of 0.39 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 September survey and are expected to deteriorate over the next six months include:
Machinery and Equipment Manufacturing and Repairing, Cutlery and Tools Manufacturing, Industrial Machinery, Bicycles Manufacturing, Bicycles Parts Manufacturing, Securities.

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

● Manufacturers’ sentiments that have been in decline in the September survey and are expected to remain sluggish over the next six months include:
Food, Slaughtering, Soft Drink Manufacturing, Leather, Fur and Allied Product Manufacturing, Plastics and Rubber Raw Materials, Plastic Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Electric Wires and Cables Manufacturing, Electrical Appliances and Housewares Manufacturing, Banks, Insurance.

● Manufacturers surveyed who felt the September outlook was the same as the previous month, but the outlook is expected to exacerbate over the next six months include:
Petrochemicals Manufacturing, Cement and Cement Products Manufacturing.

● Manufacturers surveyed who felt the September outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Edible Oil Manufacturing, Flour Milling and Grain Husking, Fabric Mills, Apparel, Clothing Accessories and Other Textile Product Manufacturing, Petroleum and Coal Products Manufacturing, Glass and Glass Products Manufacturing, Metal Structure and Architectural Components Manufacturing, Retail Sales, Restaurants and Hotels, Telecommunication Services.

● Manufacturers surveyed who felt the September outlook was the same as the previous month and the trend is expected to continue for the next six months include:
Manufacturing, Prepared Animal Feeds Manufacturing, Textiles Mills, Yarn Spinning Mills, Wood and Bamboo Products Manufacturing, Paper Manufacturing, Printing, Industrial Chemicals, Man-made Fibers Manufacturing, Rubber Products Manufacturing, Non-metallic Mineral Products Manufacturing, Iron and Steel Basic Industries, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Electrical Machinery, Electrical Machinery, Supplies Manufacturing and Repairing, Electronic Machinery, Communications Equipment and Apparatus Manufacturing, Electronic Parts and Components Manufacturing, Transport Equipment Manufacturing and Repairing, Motor Parts Manufacturing, Motorcycles Parts Manufacturing, Precision Instruments Manufacturing, Education and Entertainment Articles Manufacturing, Transportation and Storage.

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

● Manufacturers’ sentiments that have improved in the September survey and is expected to remain upbeat over the next six months include:
Motor Vehicles Manufacturing, Construction, Basic Civil Structure Construction, Wholesale.

● Manufacturers’ sentiments that have improved in the September survey and the trend is expected to continue for the next six months include:
Chemical Products Manufacturing, Audio and Video Electronic Products Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Motorcycles Manufacturing, Real Estate Investment.