The Taiwanese Economy in July 2024

Economic performance in the U.S., Europe, and Japan slightly outpaced the previous quarter in Q2 2024, with the exception of China. As U.S. inflation continues to decline and the labor market cools gradually, conditions are becoming more favorable for the Fed to consider interest rate reductions. However, disparities in industrial performance remain evident, with the global manufacturing sector experiencing an uneven recovery.
In the domestic manufacturing sector, July saw growth in orders, production, and exports compared to the previous month, reflecting the gradual expansion of the global economy. Manufacturers' perceptions of the current economic outlook showed a slight improvement over the previous month's survey. Nevertheless, concerns persist due to pricing pressures stemming from Chinese overproduction and uncertainties surrounding the U.S. presidential election, leading manufacturers to maintain constant views for the next six months.
The service sector faced challenges despite the peak summer season. Domestic tourism failed to show significant growth, and typhoon disruptions impacted retail operations, affecting sales performance. Retailers and the accommodation and food service sector expressed divergent views on the current economic situation. However, the retail sector maintains an optimistic outlook for the coming six months.
In the construction industry, despite increased demand for public works and construction, the sector's performance remained flat in July. This was attributed to the expiration of the cement tax reduction policy, rising prices of ready-mix concrete, and labor shortages. The outlook is more positive for the latter half of the year, with accelerated public works projects and record-high budgets potentially boosting the sector.
The real estate market saw a slight decline in transactions in July compared to June. This was primarily due to banks adopting a more conservative approach to mortgage lending, stricter government scrutiny of Youth Secure Home policy violations affecting short-term traders, and uncertainties related to the U.S. presidential election and Taiwan stock market fluctuations impacting buyer confidence. The real estate market outlook for the next six months remains stable, influenced by potential central bank credit controls, geopolitical shifts, and widening price expectation gaps between buyers and sellers.
According to the Taiwan Institute of Economic Research (TIER), after model simulations, the Composite Indicators for the manufacturing sector continued to decline in July, while service and construction sectors trended upward. However, the changes in both manufacturing and service sectors were limited, suggesting that business outlooks in these sectors remain unchanged from the previous month. The construction sector, on the other hand, reversed its three-month upward trend, showing a downward shift.
Firstly, in terms of Taiwan's foreign trade, driven by the surge in AI applications, demand for ICT products remained robust. However, traditional export categories have yet to stabilize. Coupled with typhoon-related disruptions that reduced working days and delayed some shipments, July's export growth rate contracted from 23.5% in the previous month to 3.1%, while import growth narrowed from 33.9% to 16.2%. Among major export products, ICT and audio-visual items saw sustained high growth rates due to AI-related demand. Conversely, electronic components experienced a shift from positive to negative growth, affected by changes in integrated circuit sales patterns and reduced shipping days. Cumulatively, from January to July 2024, exports grew by 10.0% year-on-year, while imports increased by 9.0%. The trade surplus for this period reached US$40.93 billion, a 16.0% increase.
On the domestic front, while the basic metals, automotive, and auto parts industries contracted, other sectors such as information electronics, chemical materials, fertilizers, and machinery equipment showed growth trends. The manufacturing production index for July stood at 94.84, up 1.90% month-on-month and 12.97% year-on-year.
Regarding domestic consumption, July's retail sales of general merchandise increased by 1.90% year-on-year. Department stores saw a 4.91% decrease due to typhoon disruptions. Supermarkets and hypermarkets benefited from the early start of the Zhongyuan Festival and pre-typhoon stockpiling, growing by 7.16% and 2.54% respectively. In the food and beverage service sectors, despite continued growth in food delivery sales, restaurant and beverage shop revenues were impacted by typhoon-related closures and fewer holidays compared to the same month last year. July's restaurants sector revenue totaled NT$85 billion, down 2.87% year-on-year. However, the cumulative revenue for the first seven months of the year still showed a 3.89% increase compared to the same period last year.
Additionally, in domestic financial markets, liquidity conditions remained tight. In July 2024, the interbank lending rate ranged from a high of 0.826% to a low of 0.809%, with a weighted average interest rate of 0.820%. This marked a 0.001 percentage point increase compared to the previous month and a 0.140 percentage point increase compared to the same month in 2023.
In the stock market, the first half of the month saw U.S. economic data slightly weakening, strengthening expectations for the Fed rate cuts. This optimism drove U.S. stocks higher, with Taiwan's market also showing strong performance. However, the latter half of the month was affected by disappointing forecasts from some U.S. tech companies, leading to a sharp decline in U.S. stocks and impacting Asian markets. Significant foreign selling in Taiwan's market further contributed to a short-term correction. The Taiwan Weighted Index closed at 22,199.35 points at the end of July, down 3.62%, with an average daily trading volume of NT$509.79 billion.

Business Survey Outcomes

The proportion of manufacturing firms that perceived their business as better than expected in the target month was21.7%, an increase of 6.8 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 24.7%, a decrease of 2.2 percentage points compared to the 26.9% 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 53.6%, which decreased by 4.5 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 26.7%, representing a notable increase of 10.7 percentage points compared to the 37.4% 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 an increase of 2.9 percentage points compared to the 18.2% of respondents who held a more pessimistic view of the near future in the previous month. Meanwhile, 52.2% of manufacturing firms perceived their business outlook as remaining constant in the next six months, dropped compared to the 44.4% of respondents one month earlier. Overall, manufacturing firms hold stable views for the near-term business outlook.
The TIER Manufacturing Composite Indicator for July 2024, adjusted for seasonal factors, underwent a corrective decline. It moved from the revised figure of 99.06 points in June to 99.00 points in July 2024, marking a slight drop of 0.06 points, as illustrated in Figure 1.
In addition, the TIER Service Sector Composite Indicator for July 2024 exhibited a little change. It rose from a revised value of 99.09 points in June to 99.10 points in July 2024, reflecting a slight increase of 0.01 points, as depicted in Figure 1.
Lastly, the TIER Construction Sector Composite Indicator for July 2024, adjusted for seasonal factors, dipped from the revised figure of 112.99 points in June to 111.96 points in July 2024, illustrating a decrease of 1.03 points, ending the previous three-month upward trend. This is 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 July survey and are expected to deteriorate over the next six months include:
Iron and Steel Basic Industries.
　
Manufacturers’ sentiments that have been in decline in the July survey, but are expected to improve over the next six months include:
None.
　
Manufacturers’ sentiments that have been in decline in the July survey and are expected to remain sluggish over the next six months include:
Cutlery and Tools Manufacturing, Construction, Real Estate Investment.
　
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:
Motor Vehicles Manufacturing, Motorcycles Parts Manufacturing.
　
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:
Non-metallic Mineral Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Glass and Glass Products Manufacturing, Cement and Cement Products Manufacturing, Metal Dies, Electrical Machinery, Electrical Machinery, Supplies Manufacturing and Repairing, Electronic Machinery, Communications Equipment and Apparatus Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Basic Civil Structure Construction, Retail Sales, Restaurants and Hotels, Securities, 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, Yarn Spinning Mills, Apparel, Clothing Accessories and Other Textile Product Manufacturing, Wood and Bamboo Products Manufacturing, Paper Manufacturing, Industrial Chemicals, Petrochemicals Manufacturing, Plastics and Rubber Raw Materials, Chemical Products Manufacturing, Rubber Products Manufacturing, Plastic Products Manufacturing, Fabricated Metal Products Manufacturing, Screw, Nut Manufacturing, Metal Structure and Architectural Components Manufacturing, Electric Wires and Cables Manufacturing, Motor Parts Manufacturing, Bicycles Manufacturing, Bicycles Parts Manufacturing, Wholesale.
　
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, Machinery and Equipment Manufacturing and Repairing, Industrial Machinery, Audio and Video Electronic Products Manufacturing, Electronic Parts and Components Manufacturing, Precision Instruments Manufacturing, Education and Entertainment Articles Manufacturing, Banks, Insurance, Transportation and Storage.
　
Manufacturers’ sentiments that have improved in the July survey and the trend is expected to continue for the next six months include:
Textiles Mills, Fabric Mills, Leather, Fur and Allied Product Manufacturing, Printing, Man-made Fibers Manufacturing, Petroleum and Coal Products Manufacturing, Electrical Appliances and Housewares Manufacturing, Transport Equipment Manufacturing and Repairing, Motorcycles Manufacturing.