The Taiwanese Economy in September 2021

Despite the world demands for end products have been increasing, the supply side has not yet been steady and sufficient. Disruptions in the supply value chains still taking place from time to time, not to mention the continuous shortage in commodities and incessant hiking shipping costs have jointly propped up the prices facing all economies. The producer price index has been increasing more significantly compared with the hiking of consumer price index almost everywhere in the world, which means the expected inflation is betiding. Because sooner or later, producers will have to transfer the costs to consumers eventually. The expected inflation is indeed triggering further uncertainty to global recovery. The crude prices have increasing by 70%, LNG by 100%, and coal by more than 180% on October 25th 2021 YTD. The Taiwan Institute of Economic Research (TIER) issued its business composite indicators in September. The manufacturing sector composite indicator dipped again despite of the solid performance in external markets. The service and construction composite indicators both went up nonetheless.

Taiwan’s exports in September 2021 increased by 29.15% compared with the same month of 2020, the consecutive seven-month in double digit growth, as a result of 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 September 2021 increased by 40.41% compared with imports in September of 2020, also the consecutive seven-month in double digit growth; 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 September in 2021 gave a trade surplus as at US$ 47.69 billion or increase by 17.16% y-o-y.

Taiwan’s consumer price index (CPI) increased by 2.63% in September 2021 compared with the same month of previous year, due to the fact that the low base effect has waned, so the fear of inflation is on. The core inflation rate excluding prices of the energy and food increased by 1.74% in September 2021. In addition, the wholesale price index (WPI) increased by 11.96% in September 2021 on the year-on-year basis, the consecutive six-month in double digit growth. The pressure of surging input costs is still mounting. As for exchange rate, the NTD went weaker due to the relatively stronger USD in September, although the market has still been skeptical regarding when the Fed is tightening its loose operations to cope with the potential inflation pressure. The Fed’s text game in mixing hawkish and dovish remarks simply turned everything around and vague the market expectation. The NTD/USD stood at 27.87 in late September 2021, indicating a 0.34% depreciation, whereas the NTD has still been one of the strongest Asian currencies so far since the first day of 2021. Regarding the interest rate, it still remained low and steady in September 2021 due to the continued loose monetary operations by the CBC with respect to the current exchange rate situation; the lowest and highest over-night call rate in September 2021 stood at 0.080% and 0.105% respectively.

As for exchange rate, the NTD went stronger due to the relatively weaker USD, although the market has been skeptical regarding when the Fed is tightening its loose operations to cope with the potential inflation pressure. The Fed's further dovish remarks simply turned everything around. The NTD/USD stood at 27.77 in late August 2021, indicating a 0.69% appreciation, whereas the NTD has been one of the strongest Asian currencies so far since the first day of 2021. Regarding the interest rate, it still remained low and steady in August 2021 due to the continued loose monetary operations by the CBC with respect to the current exchange rate situation; the lowest and highest over-night call rate in August 2021 stood at 0.079% and 0.084% respectively.

Business Outlook

The portion of manufacturing firms who perceived business were better than expected in the target month was 20.0% or decreased by 6.1 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 25.4% or increased by 1.0 percentage points than 24.4% perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 54.7% or increased by 5.1 percentage points compared with 49.6% perceiving constant business in the previous month. Overall, manufacturing firms perceived the business in the target month was somewhat 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 27.8% in the target month or decreased by 3.5 percentage points than 31.3% feeling more optimistic about the future in the previous month. The portion of firms who perceived the economic outlook would be worsening was 18.9% or increased by 0.5 percentage points compared with 14.9% 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 53.3% or decreased by 0.5 percentage points compared with 53.8% feeling neutral about the business outlook one month earlier.

The manufacturing composite indicator for September 2021 adjusted for seasonal factors on moving average, saw a downward correction, and from a revision of as 103.63 points in August 2021 moved down somewhat to 101.64 points in September 2021. Figure 1 shows a decrease of 1.99 points, the fifth month of consecutive drop.

The TIER service sector composite indicator for August 2021 adjusted for seasonal factors on moving average also saw an upward correlation, and from a revision of as 91.35 points in July 2021 moved up to 92.12 points. Figure 1 shows an increase of 0.77 points, the first month of hike after four-month of consecutive decrease due to the Three-level Alert measure.

In addition, the TIER Construction Sector Composite Indicator for September 2021 adjusted for the seasonal factors on moving average also saw an upward correlation, and from a revision of 107.04 points in August 2021 went up to 110.82 points in September 2021. Figure 1 shows an increase of 3.78 points, the third month of consecutive increase.

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 September survey and are expected to deteriorate over the next six months include:
None.
● Manufacturers’ sentiments that have been in decline in the September survey, but are expected to improve over the next six months include:
Glass and Glass Products Manufacturing, Electrical Machinery, Supplies Manufacturing and Repairing.
　
● Manufacturers’ sentiments that have been in decline in the September survey and are expected to remain sluggish over the next six months include::
Textiles Mills, Petroleum and Coal Products Manufacturing, Rubber Products Manufacturing, Plastic Products Manufacturing.
　
● Manufacturers surveyed who felt the August 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 August outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Frozen Food Manufacturing, Plastics and Rubber Raw Materials, Glass and Glass Products Manufacturing, Iron and Steel Basic Industries, Metal Structure and Architectural Components Manufacturing, Electric Wires and Cables Manufacturing, Electronic Machinery, Data Storage Media Units Manufacturing and Reproducing, Motor Vehicles Manufacturing, Precision Instruments Manufacturing, Construction, Real Estate Investment, Retail Sales.
　
● Manufacturers surveyed who felt the August outlook was the same as the previous month and the trend is expected to continue for the next six months include:
Manufacturing, Food, Slaughtering, Soft Drink Manufacturing , Yarn Spinning Mills, Fabric Mills , Apparel, Clothing Accessories and Other Textile Product Manufacturing, Wood and Bamboo Products Manufacturing, Paper Manufacturing, Industrial Chemicals, Petrochemicals Manufacturing, Man-made Fibers Manufacturing, Chemical Products Manufacturing, Non-metallic Mineral Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Electrical Machinery, Electrical Machinery, Supplies Manufacturing and Repairing, Electrical Appliances and Housewares Manufacturing, Communications Equipment and Apparatus Manufacturing, Transport Equipment Manufacturing and Repairing, Motor Parts Manufacturing, Motorcycles Manufacturing, Motorcycles Parts Manufacturing, Bicycles Manufacturing, Bicycles Parts Manufacturing, Telecommunication Services.
　
● Manufacturers’ sentiments that have been in decline in the September survey and are expected to remain sluggish over the next six months include:
Soft Drink Manufacturing , Textiles Mills, Yarn Spinning Mills, Man-made Fibers Manufacturing, Chemical Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Securities..
　
● 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:
None.
　
● 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:
Food, Frozen Food Manufacturing, Apparel, Clothing Accessories and Other Textile Product Manufacturing, Wood and Bamboo Products Manufacturing, Printing, Industrial Chemicals, Plastics and Rubber Raw Materials, Metal Structure and Architectural Components Manufacturing, Electrical Machinery, Electric Wires and Cables Manufacturing, Electrical Appliances and Housewares Manufacturing, Electronic Machinery, Bicycles Manufacturing, Precision Instruments Manufacturing, Construction, Retail Sales.
　
● 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, Fabric Mills , Leather, Fur and Allied Product Manufacturing, Petrochemicals Manufacturing, Rubber Products Manufacturing, Plastic Products Manufacturing, Non-metallic Mineral Products Manufacturing, Iron and Steel Basic Industries, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Communications Equipment and Apparatus Manufacturing, Transport Equipment Manufacturing and Repairing, Motor Parts Manufacturing, Motorcycles Manufacturing, Motorcycles Parts Manufacturing, Bicycles Parts Manufacturing, Banks, Insurance, Telecommunication Services.
　
● 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:
Prepared Animal Feeds Manufacturing, Paper Manufacturing, Petroleum and Coal Products Manufacturing, Cement and Cement Products Manufacturing, Machinery and Equipment Manufacturing and Repairing, Cutlery and Tools Manufacturing, Industrial Machinery, Audio and Video Electronic Products Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Electronic Parts and Components Manufacturing, Basic Civil Structure Construction, Real Estate Investment, Wholesale, Transportation and Storage.
　
● Manufacturers’ sentiments that have improved in the September survey and the trend is expected to continue for the next six months include:
Slaughtering, Motor Vehicles Manufacturing, Education and Entertainment Articles Manufacturing, Restaurants and Hotels.