The Taiwanese Economy in August 2022

Observing the recent international geopolitical and economic situation, Russia has used energy supply as a weapon and issued a mobilization order to increase its troops, which has escalated the conflict between Russia and Ukraine. In addition, many countries continue to raise interest rates to fight inflation. Both the European Central Bank and the US Federal Reserve raised interest rates by 75 basis points in September 2022, and simultaneously revised down their 2023 economic growth expectations. The economic prospects of Europe and China are still problematic to be optimistic about. The Taiwan Institute of Economic Research (TIER) issued monthly composite indicators on September 26th. Its indicators suggest that Taiwan’s manufacturing, service and construction sectors are all facing headwinds to a certain extent for the time being. For manufacturing industries, the pressure of global inflation has restrained consumption; therefore, the relevant outlook for the next six months is still mostly flat or worse. The service industry is in the peak summer travel season. However, affected by rising prices, uncertain global economic prospects, and stock market volatility, consumer confidence continues to decline, making the prosperity of the next six months is lower than that in the previous month’s survey. In the construction industry, the injection of orders for various projects has weakened, the construction period of projects under construction has been prolonged, and the recognition of project payments has been delayed, reflecting the still conservative market conditions.
Taiwan’s economic performance in external markets has been slowing down, and the export orders have been weakening. Taiwan’s exports in August 2022 increased slightly by only 2.0% compared with the same month of 2021. Regarding imports, Taiwan’s imports in August 2022 increased by only 3.5% compared with imports in August of 2021. Taiwan’s exports and imports from January till the end of August 2022 gave a trade surplus as at US$ 35.69 billion or decrease by 12.3% year-on-year due to more costly in imports of commodities and slowing growth in exports.
Taiwan’s consumer price index (CPI) increased by 2.66% in August 2022 compared with the same month of previous year, which would be 0.7 percentage points lower than the inflation rate of previous month. The core inflation rate excluding prices of the energy and food increased by 2.73% in August 2022, which would be the same as the core inflation rate in July 2022. In addition, the wholesale price index (WPI) increased by 11.54% in August 2022 on the year-on-year basis, the consecutive seventeen-month in double digit growth. The pressure of surging input costs is still less serious compared with the previous month. However, some producers may still need to transfer the cost to consumers to break even.
As for exchange rate, the NTD went weaker due to the relative trend of USD exchange rate in August 2022. As the US Federal Reserve’s upcoming policy is relatively more hawkish in order to cope with the inflation rate standing at 8.3% in August 2022. The NTD/USD stood at 30.435 in late August 2022, indicating a 1.66% depreciation. The Taiwan central bank (CBC) raised its key interest rates by 0.125 percentage points on 23rd September 2022. The attention is on CBC’s next meeting in December. Regarding the over-night call rate; the lowest and highest rate in August 2022 stood at 0.305% and 0.310% respectively.

Business Survey Outcomes

The portion of manufacturing firms who perceived business were better than expected in the target month was 19.1% or increased by 1.7 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 42.8% or remained steady as respondents perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 38.1% or decreased by 1.7 percentage points than the ratio of previous month’s respondents perceiving constant business. Overall, manufacturing firms perceived the business in the target month was somewhat pessimistic about the business conditions compared with the previous month.
In addition, the portion of manufacturers who perceived business would be better in the next six months was 17.2% in the target month or decreased by 2.9 percentage points than 20.1% 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 37.7% or decreased by 1.2 percentage points compared with 38.9% 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 45.2% or increased by 4.2 percentage points compared with 41% of respondents feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was as a result still pessimistic compared with the previous month.
As a result, the manufacturing composite indicator for August 2022 adjusted for seasonal factors on moving average, saw a downward correction, and from a revision of as 88.08 points in July moved down to 86.73 points in August 2022. Figure 1 shows a decrease of 1.35 points, an eight-month of consecutive decrease.
Moreover, the TIER service sector composite indicator for August 2022 adjusted for seasonal factors on moving average saw a downward correlation, and from a revision of as 97.20 points in July moved down to 95.60 points in August 2022. Figure 1 shows a decrease of 1.60 points, the first month dip after a one-month rise.
Last but not the least, the TIER construction sector composite Indicator for August 2022 adjusted for the seasonal factors on moving average also saw a downward correlation, and from a revision of 96.61 points in July went down to 93.12 points in August 2022. Figure 1 shows a decrease of 3.49 points, the first month dip after a one-month rise as well.

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 August survey and are expected to deteriorate over the next six months include:
Textiles Mills, Yarn Spinning Mills, Industrial Chemicals, Petrochemicals Manufacturing, Man-made Fibers Manufacturing, Iron and Steel Basic Industries, Cutlery and Tools Manufacturing, Basic Civil Structure Construction.

● Manufacturers’ sentiments that have been in decline in the August survey, but are expected to improve over the next six months include:
None.

● Manufacturers’ sentiments that have been in decline in the August survey and are expected to remain sluggish over the next six months include:
Paper Manufacturing, Plastics and Rubber Raw Materials, Metal Structure and Architectural Components Manufacturing, Education and Entertainment Articles Manufacturing, Banks, Insurance.

● 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:
Fabric Mills , Glass and Glass Products Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Construction, Securities.

● 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:
Food, Frozen Food Manufacturing, Printing, Electrical Machinery, Retail Sales, Telecommunication Services.

● 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, Slaughtering, Prepared Animal Feeds Manufacturing, Wood and Bamboo Products Manufacturing, Chemical Products Manufacturing, Petroleum and Coal Products Manufacturing, Plastic Products Manufacturing, Non-metallic Mineral Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Cement and Cement Products Manufacturing, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Electric Wires and Cables Manufacturing, Electrical Appliances and Housewares Manufacturing, Electronic Machinery, Electronic Parts and Components Manufacturing, Motor Vehicles Manufacturing, Motorcycles Manufacturing, Motorcycles Parts Manufacturing, Transportation and Storage.

● Manufacturers’ sentiments that have improved in the August survey and is expected to deteriorate over the next six months include:
Apparel, Clothing Accessories and Other Textile Product Manufacturing, Machinery and Equipment Manufacturing and Repairing, Industrial Machinery.

● Manufacturers’ sentiments that have improved in the August survey and is expected to remain upbeat over the next six months include:
Edible Oil Manufacturing, Flour Milling and Grain Husking , Soft Drink Manufacturing , Electrical Machinery, Supplies Manufacturing and Repairing, Communications Equipment and Apparatus Manufacturing, Motor Parts Manufacturing, Bicycles Manufacturing, Bicycles Parts Manufacturing, Precision Instruments Manufacturing, Restaurants and Hotels.

● Manufacturers’ sentiments that have improved in the August survey and the trend is expected to continue for the next six months include:
Leather, Fur and Allied Product Manufacturing, Rubber Products Manufacturing, Audio and Video Electronic Products Manufacturing, Transport Equipment Manufacturing and Repairing, Real Estate Investment, Wholesale.