The Taiwanese Economy in October 2021

Unceasingly hiking prices in commodities and bottlenecking shipping and goods distribution systems have jointly forming a world-wide serious problem, inflation. As a result, the inflationary pressure has obviously limited the demand for end products in the US and Europe. In addition, new type variant virus has emerged and caused further impacts on the world economy that could potentially end the ongoing expansion binge. On the other hand, seasonal demand is coming that might offset the downside to a certain extent. With mixed business atmospheres, the service composite indicator issued by the Taiwan Institute of Economic Research (TIER) on 25th November standing at 96.76 points, the third month of consecutive increase. However, both manufacturing and construction composite indicators went down.

Taiwan’s exports in October 2021 increased by 24.60% compared with the same month of 2020, the consecutive eight-month in double digit growth, as a result of 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 October 2021 increased by 37.22% compared with imports in October of 2020, also the consecutive eight-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 October in 2021 gave a trade surplus as at US$ 53.81 billion or increase by 11.79% y-o-y.

Taiwan’s consumer price index (CPI) increased by 2.58% in October 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 with hiking commodity prices. The core inflation rate excluding prices of the energy and food increased by 1.43% in October 2021. In addition, the wholesale price index (WPI) increased by 14.78% in October 2021 on the year-on-year basis, the consecutive seven-month in double digit growth. The pressure of surging input costs is still mounting meaning the producers need to transfer the cost to consumers eventually, if the imported inflation problem is not finally resolved.

As for exchange rate, the NTD went stronger due to the relatively weaker USD in October. Jerome Powell has been nominated for a second term as chair of the US Federal Reserve by US President Joe Biden. As he is set to stay in the role, which includes managing inflation and regulating the financial system for a further four years, the Fed’s upcoming policy is expected to be more hawkish. The NTD/USD stood at 27.82 in late October 2021, indicating a 0.17% appreciation, whereas the NTD has still 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 October 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 October 2021 stood at 0.081% and 0.094% respectively.

Business Outlook

The portion of manufacturing firms who perceived business were better than expected in the target month was 31.8% or increased by 11.6 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 17.1% or decreased by 6.6 percentage points than 23.7% perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 51.0% or decreased by 5.1 percentage points compared with 56.1% perceiving constant business in the previous month. Overall, manufacturing firms perceived the business in the target month was 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 23.5% in the target month or decreased by 3.9 percentage points than 27.4% feeling more optimistic about the future in the previous month. The portion of firms who perceived the economic outlook would be worsening was 15.3% or decreased by 2.8 percentage points compared with 18.1% 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 61.2% or increased by 6.7 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 neutral compared with the previous month.

The manufacturing composite indicator for October 2021 adjusted for seasonal factors on moving average, saw a downward correction, and from a revision of as 101.84 points in September 2021 moved down somewhat to 101.25 points in October 2021. Figure 1 shows a minor decrease of 0.59 points, the sixth month of consecutive drop.

The TIER service sector composite indicator for October 2021 adjusted for seasonal factors on moving average saw an upward correlation, and from a revision of as 95.18 points in September 2021 moved up to 96.76 points. Figure 1 shows an increase of 1.58 points, the third 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 October 2021 adjusted for the seasonal factors on moving average also saw a downward correlation, and from a revision of 110.82 points in September 2021 went down to 108.85 points in October 2021. Figure 1 shows a decrease of 1.97 points, the first drop after three-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 October survey and are expected to deteriorate over the next six months include:
Motorcycles Manufacturing.
● Manufacturers’ sentiments that have been in decline in the October survey, but are expected to improve over the next six months include:
Food, Frozen Food Manufacturing, Printing, Basic Civil Structure Construction.
　
● Manufacturers’ sentiments that have been in decline in the October survey and are expected to remain sluggish over the next six months include:
Slaughtering, Prepared Animal Feeds Manufacturing, Glass and Glass Products Manufacturing, 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:
None.
　
● 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:
Edible Oil Manufacturing, Flour Milling and Grain Husking , Apparel, Clothing Accessories and Other Textile Product Manufacturing, Metal Structure and Architectural Components Manufacturing, Electronic Machinery, Communications Equipment and Apparatus Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Precision Instruments Manufacturing, Construction, Wholesale.
　
● 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, Soft Drink Manufacturing , Textiles Mills, Yarn Spinning Mills, Fabric Mills , Leather, Fur and Allied Product Manufacturing, Chemical Products Manufacturing, Rubber Products Manufacturing, Plastic Products Manufacturing, Non-metallic Mineral Products Manufacturing, Iron and Steel Basic Industries, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Audio and Video Electronic Products Manufacturing, Transport Equipment Manufacturing and Repairing, Motor Vehicles Manufacturing, Motor Parts Manufacturing, Banks, Insurance.
　
● Manufacturers’ sentiments that have improved in the October survey and is expected to deteriorate over the next six months include:
Petrochemicals Manufacturing.
　
● Manufacturers’ sentiments that have improved in the October survey and is expected to remain upbeat over the next six months include:
Wood and Bamboo Products Manufacturing, Paper Manufacturing, Petroleum and Coal Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Cement and Cement Products Manufacturing, Machinery and Equipment Manufacturing and Repairing, Cutlery and Tools Manufacturing, Industrial Machinery, Electrical Machinery, Electrical Machinery, Supplies Manufacturing and Repairing, Electric Wires and Cables Manufacturing, Electronic Parts and Components Manufacturing, Bicycles Manufacturing, Bicycles Parts Manufacturing, Education and Entertainment Articles Manufacturing, Retail Sales, Telecommunication Services, Transportation and Storage.
　
● Manufacturers’ sentiments that have improved in the October survey and the trend is expected to continue for the next six months include:
Industrial Chemicals, Plastics and Rubber Raw Materials, Man-made Fibers Manufacturing, Electrical Appliances and Housewares Manufacturing, Motorcycles Parts Manufacturing, Real Estate Investment, Restaurants and Hotels.