The Taiwanese Economy in October 2023

Observing the recent international economic situation, the U.S. economy, while displaying robust growth in the third quarter, showed signs of cooling in October. Economic data revealed a decline in employment, ongoing contraction in manufacturing, and a slowdown in retail sales. These factors indicate a moderation in the U.S. economy. In the Eurozone, industrial sentiment remains subdued due to fluctuations in interest rates and energy prices. Germany, in particular, continues to experience economic contraction, dragging down the overall economic performance of the Eurozone in the third quarter.
In the domestic manufacturing sector, the global economic momentum has eased, leading to a renewed decline in exports in October. While export orders and production indices continue to show negative growth, the impact is gradually narrowing due to a lower comparative base period and sustained growth in demand for high-performance computing. However, uncertainties such as the U.S.-China tech war and geopolitical conflicts persist, causing the manufacturing sector to maintain a conservative outlook for the current month and the next six months.
The service industry benefited from the Double-Ten National Day holiday, driving opportunities in travel and dining. The catering industry, in particular, performed relatively well. However, global economic and trade growth momentum remains weak. Combined with continued foreign selling, the Taiwan stock market experienced a lackluster performance in October, affecting the wholesale and securities industries.
In the construction industry, although there is a slight improvement in the real estate market, the October transition period between old and new construction projects has impacted individual case recognition for companies. This has kept confidence relatively subdued in the construction industry.
According to a survey conducted by the Taiwan Institute of Economic Research (TIER) and subsequent model calculations, the Manufacturing Composite Indicator for October declined, while the Service Sector Composite Indicator showed an upward trend. However, the changes in both manufacturing and service industry indicators were limited. Therefore, it is assessed that the economic sentiments of the manufacturing and service industries remained unchanged compared to the previous month. In contrast, the Construction Sector Composite Indicator continued its downward trend.
In terms of foreign trade, while there is strong potential in artificial intelligence (AI) opportunities, the overall global economic slowdown continues to restrain the export momentum of most product categories. This resulted in a return to negative growth in exports for October, decreasing from a contraction of 3.44% in September to -4.51% in October. Regarding major export products, information and communication products saw the most significant growth in October, increasing by 37.59%. Chemical exports shifted from positive to negative growth, and the year-on-year decline in basic metals, machinery, and plastic and rubber products widened. Electronic components continued to be hampered by weak end-consumer demand, with the year-on-year decline showing an expanding trend.
On the import side, despite a reduction in the year-on-year decline in the import of agricultural and industrial raw materials, an increase in the year-on-year decline in the purchase of capital equipment and a shift from positive to negative growth in the import of consumer goods led to a slight expansion of the year-on-year decline in imports to -12.34% in October. Cumulatively for the first ten months of this year, exports declined by 12.88% compared to the same period last year, and imports decreased by 19.0%. The total trade surplus for January to October 2023 amounted to $59.66 billion, reflecting a growth of 39.31%.
In terms of prices, the impact of typhoons on fruit and vegetable prices has kept the year-on-year rate at a high level. Vegetable prices soared from 8.96% in September to 12.32% in October, while fruit prices increased from 8.46% to 14.55%. As a result, the overall food category's year-on-year rate expanded from 4.78% in September to 5.51% in October. Additionally, fuel costs decreased due to a decline in international prices, coupled with a reduction in public transportation costs, leading to a decrease in the year-on-year rate for the transportation and communication category from 2.30% in September to 1.66% in October.
Although the overall Consumer Price Index (CPI) increased from 2.93% last month to 3.05%, varying increases and decreases in the year-on-year rates of education and entertainment, medical care and health, and housing categories resulted in a slight increase in the core CPI from 2.48% last month to 2.49%.
In terms of the Producer Price Index (PPI), the decline in natural gas prices, coupled with decreases in prices of metal products, chemical materials and products, pharmaceuticals, and petroleum and coal products, offset in part by rising agricultural product prices and electricity price adjustments since April, along with the impact of currency depreciation, resulted in a shift from positive to negative. Consequently, the overall PPI for October 2023 declined to -0.34%. Cumulatively for January to October 2023, the CPI increased by 2.43%, while the PPI decreased by -0.54%.
In the domestic financial market, market funds remained stable. In October 2023, the overnight interbank borrowing rate in the financial industry ranged from a maximum of 0.737% to a minimum of 0.685%, with a weighted average rate of 0.691%. This represents a slight increase of 0.004 percentage points compared to the previous month and a larger increase of 0.256 percentage points compared to the same month in 2022.
Concerns over escalating geopolitical risks heightened, prompting worries about the economic outlook and resulting in weakened international stock markets. This, in turn, affected Taiwan's stock market, with the Taiwan Weighted Index closing at 16,001.27 points by the end of October, representing a decline of 2.16%. The average daily trading volume was 265.61 billion NT Dollars.
In terms of exchange rates, the international US Dollar Index was influenced by rising geopolitical risks in the Middle East. Coupled with continued foreign selling of Taiwan stocks and capital outflows, this led to a sustained softening of the NT Dollar. At the end of the month, the exchange rate was 32.419 NT Dollars to 1 US Dollar, reflecting a depreciation of 0.47%.

Business Survey Outcomes

The proportion of manufacturing firms that perceived their business as better than expected in the target month was 16.3%, a decrease of 0.5 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 35.1%, a decrease of 3.1 percentage points compared to the 38.2% 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 48.6%, which increased by 3.6 percentage points compared to the ratio of respondents from the previous month who perceived their business as constant. In general, manufacturing firms seemed to express a somewhat more pessimistic to neutral stance regarding their business outlook.
Furthermore, in the target month, the segment of manufacturers who anticipated an improvement in their business over the next six months stood at 27.8%, representing an increase of 9.4 percentage points compared to the 18.4% 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 21.1%, marking a decrease of 4.8 percentage points compared to the 25.9% of respondents who held a more pessimistic view of the near future in the previous month. Meanwhile, 51.1% of manufacturing firms perceived their business outlook as remaining constant in the next six months, showing a decrease of 4.6 percentage point compared to the 55.7% of respondents who maintained a neutral stance on the business outlook one month earlier. Overall, manufacturing firms appeared to hold a slightly more optimistic view of the business outlook in the near future.
However, when converted into a moving average, the manufacturing composite indicator for October 2023, adjusted for seasonal factors, exhibited a downward correction. It dropped from the revised figure of 94.09 points in September 2023 to 93.71 points in October 2023. As depicted in Figure 1, this represents a decrease of 0.38 points. It can be almost considered as remaining unchanged from the previous month.
Furthermore, the TIER service sector composite indicator for October 2023, when observed as a moving average, displayed an upward trend. It increased from a revised value of 92.20 points in September 2023 to 92.25 points in October 2023. Figure 1 illustrates an increase of 0.05 points. It can also be almost considered as remaining unchanged from the previous month.
Additionally, the TIER construction sector composite indicator for October 2023, adjusted for seasonal factors as a moving average, exhibited a declining trend. It dropped from the revised figure of 101.19 points in September 2023 to 99.27 points in October 2023. Figure 1 shows a decrease of 1.92 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 October 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,

Manufacturers’ sentiments that have been in decline in the October survey, but are expected to improve over the next six months include:
Petroleum and Coal Products Manufacturing, Audio and Video Electronic Products Manufacturing, Wholesale,

Manufacturers’ sentiments that have been in decline in the October survey and are expected to remain sluggish over the next six months include:
Soft Drink Manufacturing, Chemical Products Manufacturing, Rubber Products Manufacturing, Communications Equipment and Apparatus Manufacturing, Basic Civil Structure Construction, Securities,

Manufacturers surveyed who felt the October 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, Electrical Appliances and Housewares Manufacturing, Transport Equipment Manufacturing and Repairing, Motorcycles Parts Manufacturing,

Manufacturers surveyed who felt the October outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Food, Edible Oil Manufacturing, Flour Milling and Grain Husking, Textiles Mills, Yarn Spinning Mills, Fabric Mills, Apparel, Clothing Accessories and Other Textile Product Manufacturing, Printing, Man-made Fibers Manufacturing, Glass and Glass Products Manufacturing, Metal Structure and Architectural Components Manufacturing, Electric Wires and Cables Manufacturing, Education and Entertainment Articles Manufacturing, Real Estate Investment, Telecommunication Services.

Manufacturers surveyed who felt the October 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, Wood and Bamboo Products Manufacturing, Paper Manufacturing, Industrial Chemicals, Plastics and Rubber Raw Materials, Plastic Products Manufacturing, Non-metallic Mineral Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Iron and Steel Basic Industries, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Electrical Machinery, Electronic Machinery, Electronic Parts and Components Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Motor Parts Manufacturing, Precision Instruments Manufacturing, Construction, Transportation and Storage.

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

Manufacturers’ sentiments that have improved in the October survey and is expected to remain upbeat over the next six months include:
Frozen Food Manufacturing, Leather, Fur and Allied Product Manufacturing, Electrical Machinery, Supplies Manufacturing and Repairing, Retail Sales, Restaurants and Hotels, Banks, Insurance.

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