The Taiwanese Economy in May 2024

The European Central Bank has cut interest rates for the first time since 2019. However, the ECB's easing policy is expected to proceed more cautiously due to persistent service inflation, energy price pressures, and limited labor supply. Inflation in the US is cooling slowly, but the Fed continues to adjust both the timing and scale of potential rate cuts, suggesting that high interest rates may persist for an extended period.
In Taiwan's domestic manufacturing sector, despite ongoing business opportunities in emerging technologies and May's growth in export orders, production, and foreign trade for traditional industries compared to the previous month, leading to a positive shift in views for the current month. However, anticipated increasing oil and shipping prices, coupled with difficulties in passing on costs to clients, led to a negative shift in manufacturers' perception regarding the next six-month economic outlook. As the peak consumption season approaches, despite fewer consecutive holidays, travel intentions remain strong. Combined with the wealth effect created by the stock market, the consumption boom shows no signs of abating. Consequently, a significantly higher proportion of service industry operators are optimistic about economic performance over the next six months.
As for Taiwan's construction industry, while public works projects have commenced, inflation has driven up the costs of building materials and labor. Coupled with persistent labor shortages, this has led to a stable view regarding the current month's economic performance. The real estate industry, however, maintains a positive outlook due to continued robust property transactions. Looking ahead, the government's ongoing expansion of green energy and infrastructure projects, along with high-tech companies' development of AI industry chains, is expected to increase the volume of public civil engineering and industrial building projects. This suggests an improving outlook for the construction industry over the next six months. However, the central bank's implementation of a sixth round of credit controls and the government's comprehensive review of the Youth Secure Home policy are likely to moderate the growth in transaction volumes in the short term, leading to a neutral outlook for the next six months.
According to the survey results from the Taiwan Institute of Economic Research (TIER), after model calculations, the Composite Indicators for the manufacturing, service, and construction sectors all rose in May 2024, showing an upward trend for six, three, and two consecutive months, respectively.
Firstly, regarding Taiwan's foreign trade, despite end demand not yet showing widespread recovery, steady global economic improvement and continued robust demand for emerging technology applications have kept export growth positive. May's export growth rate decreased slightly to 3.45% year-on-year from 4.27% in the previous month, marking the seventh consecutive month of positive growth. Strong demand for AI applications has driven growth in exports of computers, peripheral units, and storage media, maintaining high year-on-year growth rates for ICT and audio-visual products.
On the domestic front, the manufacturing production index reached 98.05 in May, representing a 16.70% year-on-year increase. This growth was fueled by continued demand in AI, high-performance computing, and cloud data services, as well as increased inventory restocking in some traditional industries.
In the domestic consumption market, overall retail sales grew 2.84% year-on-year in May. Department store sales continued to decline, primarily due to renovations in some malls and a higher base for comparison from the previous year. The food and beverage sector, having moved past food safety concerns, capitalized on seasonal opportunities and expansion efforts, resulting in a 4.13% year-on-year increase in May, with cumulative growth of 4.80% for the first five months of the year.
In the stock market, the Taiwan Weighted Index closed at 21,174.22 points at the end of May, up 3.81%, with an average daily transaction volume of NT$460.742 billion. This performance was driven by the Fed's interest rate decision aligning with market expectations, cooling inflation, and strong growth in AI chip demand, reflected in the robust first-quarter financial reports of U.S. AI tech giants.
Regarding exchange rates, despite continued dollar strength, signs of cooling U.S. inflation led to a slight weakening of the dollar. The New Taiwan Dollar strengthened along with other Asian currencies, supported by foreign capital inflows and net buying of Taiwan stocks. The exchange rate closed the month at 32.42 to the U.S. dollar, appreciating by 0.38%.

Business Survey Outcomes

The proportion of manufacturing firms that perceived their business as better than expected in the target month was 24.5%, a decrease of 0.4 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 18.3%, a decrease of 0.6 percentage points compared to the 18.9% 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 57.2%, which increased by 0.9 percentage points compared to the ratio of respondents from the previous month who perceived their business as constant. Furthermore, in the target month, the segment of manufacturers who anticipated an improvement in their business over the next six months stood at 28.2%, representing a decrease of 6.8 percentage points compared to the 35.0% 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 16.7%, marking an increase of 6.8 percentage points compared to the 9.9% of respondents who held a more pessimistic view of the near future in the previous month. Meanwhile, 55.1% of manufacturing firms perceived their business outlook as remaining constant in the next six months, unchanged compared to the same portion of respondents one month earlier. Overall, manufacturing firms are divided over their views of the business outlook in the near future.
The TIER Manufacturing Composite Indicator for May 2024, adjusted for seasonal factors, underwent a corrective upturn. It moved from the revised figure of 98.66 points in April to 99.73 points in May 2024, marking an increase of 1.07 points, as illustrated in Figure 1.
In addition, the TIER Service Sector Composite Indicator for May 2024 exhibited an upward trajectory. It rose from a revised value of 95.75 points in April to 97.44 points in May 2024, reflecting an increase of 1.69 points, as depicted in Figure 1.
Lastly, the TIER Construction Sector Composite Indicator for May 2024, adjusted for seasonal factors, also demonstrated an upward trend. It went up from the revised figure of 107.16 points in April to 110.05 points in May 2024, illustrating an increase of 2.89 points, as shown in Figure 1.

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