The Taiwanese Economy in January 2023

Recently, a common phenomenon has appeared in the international economy. The manufacturing industry generally has excess inventory and a downturn in the economy; while the service industry has benefited from the unblocking of the epidemic, and most of them are showing a recovery trend. For instance: the service industry is recovering faster than expected, but the performance of the manufacturing industry in the United States, Europe and Japan is still rather weak, demand is sluggish and inflationary pressure is still high, and interest rates continue to hike. This led to a gloomy economic outlook, but with the rapid shift in China’s COVID-19 policy, some international forecasting agencies are generally optimistic about China’s economic prospects this year. As for Taiwan’s domestic manufacturing industry, it is expected that manufacturers’ destocking and inventory adjustments will come to an end in the near future, coupled with China’s economic recovery, the proportion of manufacturers who are optimistic is significantly higher than that who are pessimistic about the economic performance in the next six months. The service industry has benefited from the long holidays of the Lunar New Year this year, which has led to an increase in the purchase of goods and outings. In addition, after the border was unsealed, the number of people entering and leaving the country soared, and the domestic and foreign tourism markets rebounded sharply. Therefore, retailers and hoteliers are obviously optimistic about the economic performance of the month. The manufacturing and service composite indicators issued by the Taiwan Institute of Economic Research (TIER) as a result signal possible hint of bottoming out.
In terms of foreign trade, due to the still weak global economic demand, coupled with the long Lunar New Year holiday break and fewer working days, the annual growth rate of exports of 11 major categories of goods continued to show negative growth. Taiwan’s exports in January 2023 decreased significantly by 21.2% compared with the same month of 2022, the consecutive three-month in double digit decrease. Regarding imports, Taiwan’s imports in January 2023 decreased by 16.6% compared with imports in January of 2022. Taiwan’s exports and imports in January 2023 gave a trade surplus as at US$ 2.34 billion or decrease by 53.3% year-on-year.
Taiwan’s consumer price index (CPI) increased by 3.04% in January 2023 compared with the same month of previous year, which would be 0.33 percentage points higher than the inflation rate of previous month. The core inflation rate excluding prices of the energy and food increased by 2.98% in January 2023, which would be 0.26 percentage points higher than the core inflation rate in January 2022. In addition, the producer price index (PPI) increased by 5.61% in January 2023 on the year-on-year basis, which would be 0.71 percentage points lower than the previous month caused by the fact that the global commodity prices have been recently dropping.
As for exchange rate, the NTD went stronger due to the relative trend of USD exchange rate in January 2023. The NTD/USD stood at 30.052 in late January 2023, indicating a 2.18% appreciation. Regarding the over-night call rate; the lowest and highest rate in January 2023 stood at 0.555% and 0.621% respectively.

Business Survey Outcomes

The portion of manufacturing firms who perceived business were better than expected in the target month was 12.5% or increased by 2.1 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 44.4% or decreased by 4.4 percentage points than 48.8% of respondents perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 43.1% or increased by 2.2 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 neutral and somewhat 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 36.1% in the target month or increased by 10.9 percentage points than 25.2% 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 16.4% or decreased by 13.3 percentage points compared with 29.7% 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 47.5% or increased by 2.4 percentage points compared with 45.1% of respondents feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was also more neutral and somewhat more optimistic compared with the previous month.
As a result, the manufacturing composite indicator for January 2023 adjusted for seasonal factors on moving average, saw an upward correction, and from a revision of as 86.50 points in December 2022 moved up to 88.18 points in January 2023. Figure 1 shows an increase of 1.68 points.
Moreover, the TIER service sector composite indicator for January 2023 on moving average also saw an upward correlation, and from a revision of as 90.01 points in December 2022 moved up to 91.96 points in January 2023. Figure 1 shows an increase of 1.95 points.
In addition, the TIER construction sector composite Indicator for January 2023 adjusted for the seasonal factors on moving average saw a downward correlation, and from a revision of 92.27 points in December 2022 went down to 91.50 points in January 2023. Figure 1 shows a decrease of 0.77 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 January survey and are expected to deteriorate over the next six months include:
Glass and Glass Products Manufacturing, Machinery and Equipment Manufacturing and Repairing, Cutlery and Tools Manufacturing, Industrial Machinery, Data Storage Media Units Manufacturing and Reproducing, Bicycles Manufacturing, Bicycles Parts Manufacturing, Real Estate Investment.

● Manufacturers’ sentiments that have been in decline in the January survey, but are expected to improve over the next six months include:
Food, Edible Oil Manufacturing, Flour Milling and Grain Husking , Metal Structure and Architectural Components Manufacturing, Electric Wires and Cables Manufacturing, Audio and Video Electronic Products Manufacturing, Insurance.

● Manufacturers’ sentiments that have been in decline in the January survey and are expected to remain sluggish over the next six months include:
Manufacturing, Slaughtering, Prepared Animal Feeds Manufacturing, Textiles Mills, Yarn Spinning Mills, Fabric Mills , Apparel, Clothing Accessories and Other Textile Product Manufacturing, Leather, Fur and Allied Product Manufacturing, Paper Manufacturing, Printing, Industrial Chemicals, Petrochemicals Manufacturing, Plastics and Rubber Raw Materials, Man-made Fibers Manufacturing, Chemical Products Manufacturing, Rubber Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Cement and Cement Products Manufacturing, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Electronic Parts and Components Manufacturing, Transport Equipment Manufacturing and Repairing, Motor Vehicles Manufacturing, Motorcycles Manufacturing, Motorcycles Parts Manufacturing, Construction, Basic Civil Structure Construction, Wholesale, Securities, Transportation and Storage.

● Manufacturers surveyed who felt the January outlook was the same as the previous month, but the outlook is expected to exacerbate over the next six months include:
Wood and Bamboo Products Manufacturing.

● Manufacturers surveyed who felt the January outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Frozen Food Manufacturing, Electrical Machinery, Electrical Machinery, Supplies Manufacturing and Repairing, Motor Parts Manufacturing, Precision Instruments Manufacturing, Telecommunication Services.

● Manufacturers surveyed who felt the January outlook was the same as the previous month and the trend is expected to continue for the next six months include:
Petroleum and Coal Products Manufacturing, Plastic Products Manufacturing, Iron and Steel Basic Industries, Electronic Machinery, Communications Equipment and Apparatus Manufacturing, Education and Entertainment Articles Manufacturing.

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

● Manufacturers’ sentiments that have improved in the January survey and is expected to remain upbeat over the next six months include:
Soft Drink Manufacturing , Retail Sales, Restaurants and Hotels, Banks.

● Manufacturers’ sentiments that have improved in the January survey and the trend is expected to continue for the next six months include:
Non-metallic Mineral Products Manufacturing, Electrical Appliances and Housewares Manufacturing.