The Taiwanese Economy in August 2021

The outbreak and nonstop spread of Delta virus variant have shown no signs of diminishing. As the notorious virus variant has been forcing many economies to readopt strict measures in response that are very like to increase uncertainties and dwarf economic growth. The Asia Pacific Economic Cooperation (APEC) had its second round of safe passage roundtable on 23rd September trying to cope with the impacts, enhance connectivity and revitalize economy. Despite that, the economic conditions in the near term are as vague as mud. Nevertheless, the market demand for end products, namely the US and European markets, nowadays remain strong and solid because of reopening with improving vaccination rate. The Taiwan Institute of Economic Research (TIER) issued its business composite indicators in August. The the manufacturing sector and service sector composite indicators are moving at diverse directions, the former continued to drop, and the latter was finally on the rebound after four-month of consecutive decrease due to the Three-level Alert measure; nevertheless, the construction sector composite indicator increased again since July this year.

Taiwan's exports in August 2021 increased by 26.94% compared with the same month of 2020, the consecutive six-month in double digit growth, thanks to a strong market demand for ICT parts and components and other merchandises in addition to much lower base effect due to the COVID-19 impacts. Regarding imports, Taiwan's imports in August 2021 increased by 46.26% compared with imports in August of 2020, also the consecutive six-month in double digit growth; lower base effect would also be the main cause. On the cumulative basis, Taiwan's exports and imports from January 1st till the end of August in 2021 gave a trade surplus as at US$ 41.21 billion or increase by 22.02% y-o-y.

Taiwan's consumer price index (CPI) increased by 2.36% in August 2021 compared with the same month of previous year, due to the fact that the low base effect has waned, so the fear of inflation is on. The core inflation rate excluding prices of the energy and food increased by 1.33% in August 2021. In addition, the wholesale price index (WPI) increased by 11.88% in August 2021 on the year-on-year basis, the consecutive five-month in double digit growth. The pressure of surging input costs is still mounting.

As for exchange rate, the NTD went stronger due to the relatively weaker USD, although the market has been skeptical regarding when the Fed is tightening its loose operations to cope with the potential inflation pressure. The Fed's further dovish remarks simply turned everything around. The NTD/USD stood at 27.77 in late August 2021, indicating a 0.69% appreciation, whereas the NTD has been one of the strongest Asian currencies so far since the first day of 2021. Regarding the interest rate, it still remained low and steady in August 2021 due to the continued loose monetary operations by the CBC with respect to the current exchange rate situation; the lowest and highest over-night call rate in August 2021 stood at 0.079% and 0.084% respectively.

Business Outlook

The portion of manufacturing firms who perceived business were better than expected in the target month was 25.6% or decreased by 3.2 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 23.9% or increased by 4.1 percentage points than 19.8% perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 50.2% or decreased by 0.8 percentage points compared with 51.3% perceiving constant business in the previous month. Overall, manufacturing firms perceived the business in the target month was somewhat more pessimistic compared with the previous month.

In addition, the portion of manufacturers who perceived business would be better in the next six months was 30.9% in the target month or decreased by 1.5 percentage points than 32.4% feeling more optimistic about the future in the previous month. The portion of firms who perceived the economic outlook would be worsening was 15.7% or increased by 2.6 percentage points compared with 13.1% feeling rather pessimistic about the future in the previous month. The portion of manufacturing firms who perceived business remained constant in the next six months stood at 53.5% or decreased by 1.0 percentage points compared with 54.5% feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was as a result somewhat more pessimistic compared with the previous month.

The manufacturing composite indicator for August 2021 adjusted for seasonal factors on moving average, saw a mild downward correction, and from a revision of as 103.69 points in July 2021 moved down somewhat to 103.53 points in August 2021. Figure 1 shows a slight decrease of 0.16 points.

The TIER service sector composite indicator for August 2021 adjusted for seasonal factors on moving average also saw an upward correlation, and from a revision of as 91.35 points in July 2021 moved up to 92.12 points. Figure 1 shows an increase of 0.77 points, the first month of hike after four-month of consecutive decrease due to the Three-level Alert measure.

In addition, the TIER Construction Sector Composite Indicator for August 2021 adjusted for the seasonal factors on moving average saw an upward correlation, and from a revision of 102.83 points in Julye 2021 went up to 106.72 points in August 2021. Figure 1 shows an increase of 3.89 points, the second month of consecutive increase.

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