The Taiwanese Economy in July 2023

Analyzing recent global economic conditions, international credit rating agencies have downgraded the credit ratings of several regional banks in the United States. Additionally, certain major real estate developers in China are facing liquidity issues, intensifying risks within the financial markets. Following two consecutive months of decline, industrial production and capacity utilization in the United States rebounded in July. Moreover, both the manufacturing new order indices for the United States and China showed improvement in July compared to June, indicating a positive trend in the manufacturing sector's outlook compared to the preceding months. In Taiwan’s domestic manufacturing sector, as the electronic industry’s peak season approaches, there has been a resurgence in exports of technological products, external orders, and production performance compared to the previous month. However, traditional industries are grappling with subdued end-demand, resulting in a continued decline in their performance. Nevertheless, the extent of decline has narrowed compared to the previous month, leading manufacturing companies to express noticeably improved perceptions about the current month’s economic performance compared to the prior survey.
Taiwan’s service industry is benefiting from the summer vacation peak season and active stock market trading, boosting optimism among securities and hospitality businesses about the current month’s economic performance. However, there is still a shortage of labor in the consumer goods sector, causing the majority of service industries to hold a relatively neutral outlook for the next six months. In the construction sector, as the new law on average land rights formally takes effect and discrepancies in price perceptions between buyers and sellers lead to a contraction in real estate transaction volume, the construction industry is being bolstered by capital market funds flowing into commercial investment projects. Moreover, public projects are progressing ahead of schedule, and the government’s continued expansion of budget expenditures all contribute to driving the future performance of the construction industry.
According to the survey results from the Taiwan Institute of Economic Research (TIER), after model calculations, the Manufacturing Composite Indicator for July reversed its previous three-month downward trend and began to rise. While the Service Sector Composite Indicator continues to show an upward trajectory, the magnitude of the increase is limited. Therefore, it’s assessed that the service industry's perception of the economic outlook remains unchanged compared to the previous month. Meanwhile, the Construction Sector Composite Indicator exhibits a second consecutive month of improvement.
In terms of foreign trade, due to the still weak and uncertain global economic demand, Taiwan’s exports in July 2023 decreased by 10.40% compared with the same month of 2022, the consecutive eleven-month decrease. Regarding imports, Taiwan’s imports in July 2023 decreased by 20.86% compared with imports in July of 2022. Taiwan’s exports and imports from the beginning of this year till the end of July 2023 gave a trade surplus of US$ 34.932 billion or increased by 9.37% year-on-year. While Taiwan’s exports have displayed sluggishness throughout the current year, the surplus remains elevated compared to the previous year primarily due to an even weaker performance in imports.
Taiwan’s consumer price index (CPI) increased by 1.88% in July 2023 compared with the same month of previous year, or 0.13 percentage points higher than the inflation rate of previous month. The core inflation rate excluding prices of the energy and food increased by 2.73% in July 2023, which would be 0.13 percentage points higher than the core inflation rate in June 2023. In addition, the producer price index (PPI) decreased by 3.19% in July 2023 on the year-on-year basis, which would be 1.63 percentage points higher than the previous month.
As for exchange rate, the NTD went weaker due to the relative trend of USD exchange rate in July 2023. The NTD/USD stood at 31.43 in late July 2023, indicating a 0.94% depreciation. Regarding the over-night call rate; the highest and the lowest rate in July 2023 stood at 0.686% 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 18.1% or increased by 7.3 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 28.2% or decreased by 13.1 percentage points than 41.3% of respondents perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 53.7% or increased by 5.8 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 optimistic compared with the previous month.
In addition, the portion of manufacturers who perceived business would be better in the next six months was 22.4% in the target month or increased by 3.0 percentage points than 19.4% 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 23.4% or decreased by 6.7 percentage points compared with 30.1% 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 54.1% or increased by 3.6 percentage points compared with 50.5% of respondents feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was also somewhat more optimistic compared with the previous month.
As a result, the manufacturing composite indicator for July 2023 adjusted for seasonal factors on moving average, saw an upward correction, and from a revision of as 87.70 points in June 2023 moved up to 91.39 points in July 2023. Figure 1 shows an increase of 3.69 points.
Moreover, the TIER service sector composite indicator for July 2023 on moving average also saw an upward correlation, and from a revision of as 99.72 points in June 2023 moved up to 99.76 points in July 2023. Figure 1 shows an increase of 0.04 points.
In addition, the TIER construction sector composite Indicator for July 2023 adjusted for the seasonal factors on moving average saw an upward correlation as well, and from a revision of 95.18 points in June 2023 went up to 96.01 points in July 2023. Figure 1 shows an increase of 0.83 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 July survey and are expected to deteriorate over the next six months include:
Wood and Bamboo Products Manufacturing, Machinery and Equipment Manufacturing and Repairing, Cutlery and Tools Manufacturing, Industrial Machinery, Motorcycles Parts Manufacturing, Bicycles Manufacturing, Bicycles Parts Manufacturing.

● Manufacturers’ sentiments that have been in decline in the July survey, but are expected to improve over the next six months include:
Metal Structure and Architectural Components Manufacturing, Data Storage Media Units Manufacturing and Reproducing.

● Manufacturers’ sentiments that have been in decline in the July survey and are expected to remain sluggish over the next six months include:
Chemical Products Manufacturing, Iron and Steel Basic Industries, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Electric Wires and Cables Manufacturing, Communications Equipment and Apparatus Manufacturing, Precision Instruments Manufacturing.

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

● Manufacturers surveyed who felt the July outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Paper Manufacturing, Printing, Motorcycles Manufacturing, Basic Civil Structure Construction, Wholesale, Banks, Telecommunication Services.

● Manufacturers surveyed who felt the July outlook was the same as the previous month and the trend is expected to continue for the next six months include:
Manufacturing, Slaughtering, Prepared Animal Feeds Manufacturing, Textiles Mills, Yarn Spinning Mills, Fabric Mills , Leather, Fur and Allied Product Manufacturing, Industrial Chemicals, Petrochemicals Manufacturing, Plastics and Rubber Raw Materials, Man-made Fibers Manufacturing, Petroleum and Coal Products Manufacturing, Rubber Products Manufacturing, Plastic Products Manufacturing, Non-metallic Mineral Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Electrical Machinery, Electrical Machinery, Supplies Manufacturing and Repairing, Electrical Appliances and Housewares Manufacturing, Electronic Machinery, Audio and Video Electronic Products Manufacturing, Electronic Parts and Components Manufacturing, Transport Equipment Manufacturing and Repairing, Motor Parts Manufacturing, Education and Entertainment Articles Manufacturing, Construction, Retail Sales, Transportation and Storage.

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

● Manufacturers’ sentiments that have improved in the July 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, Glass and Glass Products Manufacturing, Restaurants and Hotels, Insurance.

● Manufacturers’ sentiments that have improved in the July survey and the trend is expected to continue for the next six months include:
Motor Vehicles Manufacturing, Securities.