The Taiwanese Economy in February 2024

Observing recent international economic conditions, the US economy continues to show stability, with the Federal Reserve keeping interest rates unchanged and raising the 2024 economic growth forecast. Economic confidence in the Eurozone has slightly decreased, with the European Central Bank pausing interest rate hikes for the fourth consecutive time and revising down the 2024 economic growth outlook. Due to record-high wage increases in Japan and the depreciation of the yen, the Bank of Japan has raised interest rates for the first time in 17 years, ending its negative interest rate policy. Although China’s manufacturing PMI has slightly decreased, industrial added value and exports continue to grow, indicating clear signs of economic recovery. In Taiwan’s domestic manufacturing sector, influenced by the Lunar New Year holiday, manufacturing orders and exports in February significantly declined compared to the previous month, leading to a deterioration in manufacturers' views on the month’s economic performance. However, as global demand for consumer goods gradually picks up, manufacturers’ sales and inventories continue to improve, leading to a shift towards optimism regarding the future six-month economic outlook. In Taiwan’s service sector, apart from the hospitality industry benefiting from the Lunar New Year holiday, resulting in strong demand for dining and travel, other service industries also experienced reduced business days. Additionally, the peak in retail sales of consumer goods has passed, leading to a negative shift in the overall service industry’s perception of the month’s economic performance. As for Taiwan’s construction industry, the shortage of manpower and the upward trend in building material costs have impacted the initiation pace of new construction projects, resulting in a negative shift in the construction industry’s perception of the month's economic outlook.
According to the Taiwan Institute of Economic Research (TIER), after model simulations, the Composite Indicators for the manufacturing sector in February 2024 showed only a slight increase, leading to the assessment that the manufacturing industry’s outlook on the economy remained unchanged compared to the previous month. Although the Composite Indicators for the service sector continued to decline, the decrease was limited, leading to the assessment that the service industry’s outlook on the economy remained unchanged compared to the previous month. However, the Composite Indicators for the construction industry ceased the previous trend of continuous growth for three months and turned downward.
Firstly, in terms of Taiwan’s foreign trade, due to the Lunar New Year holiday, February had fewer working days compared to the same month last year. Apart from the continued strong performance of information technology and audiovisual products, exports of other categories generally declined, leading to a reduction in the year-on-year export growth rate from 17.7% last month to 1.3% in February. The year-on-year import growth rate also shifted from a 19.0% increase to a 17.8% decline. Cumulatively for the first two months of 2024, exports grew by 9.6% compared to the same period in 2023, while imports saw a slight increase of 0.7%. Overall, the trade surplus for January to February 2024 amounted to $10.27 billion, marking a growth of 117.5%.
Regarding prices, due to the Lunar New Year falling at a different time, which resulted in a lower comparison base period, Taiwan’s overall CPI year-on-year growth rate increased from 1.80% in January to 3.08% in February, reaching a new high in 19 months. The core CPI year-on-year growth rate also rose from 1.65% in January to 2.90%. Looking at the average prices for January to February, the overall CPI year-on-year growth rate decreased from 2.70% in December 2023 to 2.43% in January-February 2024, and the core CPI year-on-year growth rate also decreased from 2.43% to 2.27%. Regarding the PPI, influenced by the rise in prices of agricultural products, earth and stone, and mineral products, the year-on-year growth rate of manufacturing product prices changed from negative to positive, leading to a reduction in the overall PPI year-on-year growth rate from -0.57% in December 2023 to -0.12% in January-February 2024.
In Taiwan’s labor market, the number of people becoming unemployed due to workplace downsizing or dissatisfaction with existing jobs notably increased compared to the previous month. The unemployment rate in February 2024 stood at 3.39%, up by 0.08 percentage points from the previous month but down by 0.14 percentage points from the same month last year. The average unemployment rate for January-February was 3.35%, down by 0.17 percentage points compared to the same period last year. Regarding wages, as the Lunar New Year fell in the same month last year, resulting in most companies distributing year-end bonuses, the comparison base period was relatively high. In January 2024, the average total salary was NT$85,796, marking a decline of 18.54% compared to the same month in 2023. The average regular salary in January was NT$46,140, representing an increase of 2.30% compared to January 2023. After accounting for inflation factors, the real regular salary in January 2024 was NT$43,287, showing a growth of 0.50% compared to the same month in 2023. The real total salary in January 2024 was NT$80,492, declining by 19.98% compared to January 2023.
In the domestic financial market, market funds remained stable in February 2024. The overnight interbank lending rate for the financial industry ranged from a high of 0.773% to a low of 0.684%, with a weighted average rate of 0.693%. This represented an increase of 0.006 percentage points compared to the previous month and a rise of 0.137 percentage points from the same month in 2023. In the stock market, despite high US inflation data, reducing expectations for the Fed to cut interest rates early, the strong performance of US technology stocks continued to boost the overall market. The Taiwan Weighted Index closed at 18,966.77 points at the end of February, surging by 6.02%, with an average daily trading volume of NT$389.618 billion. Regarding exchange rates, due to the strength of the US dollar internationally and increased geopolitical risks in the Taiwan Strait, coupled with fund outflows from investment trusts, the NT Dollar depreciated, closing at 31.577 against the US dollar at the end of the month, down by 0.87%. Additionally, the Taiwan Central Bank (CBC) agreed to raise the policy rate by 0.125 percentage points at its joint meeting of directors and supervisors on March 21st, pushing the rediscount rate to 2%, marking a 15-year high. The Central Bank’s board of directors believed that raising interest rates would help promote price stability and assist in the overall steady development of the economy and finance.

Business Survey Outcomes

The proportion of manufacturing firms that perceived their business as better than expected in the target month was 11.7%, a decrease of 19.8 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 36.7%, an increase of 14.8 percentage points compared to the 21.9% 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 51.6%, which increased by 5.0 percentage points compared to the ratio of respondents from the previous month who perceived their business as constant. In general, manufacturing firms seemed to express a rather pessimistic stance regarding their business outlook.
Furthermore, in the target month, the segment of manufacturers who anticipated an improvement in their business over the next six months stood at 50.2%, representing an increase of 22.6 percentage points compared to the 27.6% 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 11.1%, marking a decrease of 8.7 percentage points compared to the 19.8% of respondents who held a more pessimistic view of the near future in the previous month. Meanwhile, 38.7% of manufacturing firms perceived their business outlook as remaining constant in the next six months, showing a decrease of 13.9 percentage point compared to the 52.6% of respondents who maintained a neutral stance on the business outlook one month earlier. Overall, manufacturing firms appeared to hold a more optimistic view of the business outlook in the near future.
The TIER Manufacturing Composite Indicator for February 2024, adjusted for seasonal factors, underwent a corrective upturn. It increased from the revised figure of 98.12 points in January to 98.18 points in February 2024, marking a slight increase of 0.06 points, as illustrated in Figure 1.
In addition, the TIER Service Sector Composite Indicator for February 2024, analyzed as a moving average, exhibited a downward trajectory. It decreased from a revised value of 93.18 points in January to 92.72 points in February 2024, reflecting a decrease of 0.46 points, as depicted in Figure 1.
Lastly, the TIER Construction Sector Composite Indicator for February 2024, adjusted for seasonal factors and observed as a moving average, demonstrated a descending trend. It climbed from the revised figure of 106.48 points in January to 103.66 points in February 2024, illustrating a notable decrease of 2.82 points, as 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 February survey and are expected to deteriorate over the next six months include:
Non-metallic Mineral Products Manufacturing, Cement and Cement Products Manufacturing.
　
Manufacturers’ sentiments that have been in decline in the February survey, but are expected to improve over the next six months include:
Food, Slaughtering, Frozen Food Manufacturing, Edible Oil Manufacturing, Flour Milling and Grain Husking, Soft Drink Manufacturing, Prepared Animal Feeds Manufacturing, Industrial Chemicals, Petrochemicals Manufacturing, Rubber Products Manufacturing, Metal Structure and Architectural Components Manufacturing, Electrical Machinery, Electric Wires and Cables Manufacturing, Electrical Appliances and Housewares Manufacturing, Audio and Video Electronic Products Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Basic Civil Structure Construction, Banks.
　
Manufacturers’ sentiments that have been in decline in the February survey and are expected to remain sluggish over the next six months include:
Printing, Plastics and Rubber Raw Materials, Chemical Products Manufacturing, Plastic Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Glass and Glass Products Manufacturing, Iron and Steel Basic Industries, Fabricated Metal Products Manufacturing, Screw, Nut Manufacturing, Cutlery and Tools Manufacturing, Communications Equipment and Apparatus Manufacturing, Retail Sales, Wholesale, Securities, Insurance.
　
Manufacturers surveyed who felt the February 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 February outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Manufacturing, Textiles Mills, Yarn Spinning Mills, Fabric Mills, Apparel, Clothing Accessories and Other Textile Product Manufacturing, Leather, Fur and Allied Product Manufacturing, Wood and Bamboo Products Manufacturing, Paper Manufacturing, Man-made Fibers Manufacturing, Electrical Machinery, Supplies Manufacturing and Repairing, Bicycles Manufacturing, Bicycles Parts Manufacturing, Precision Instruments Manufacturing, Education and Entertainment Articles Manufacturing, Construction, Telecommunication Services.
　
Manufacturers surveyed who felt the February 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, Metal Dies, Machinery and Equipment Manufacturing and Repairing, Industrial Machinery, Electronic Machinery, Electronic Parts and Components Manufacturing, Transport Equipment Manufacturing and Repairing, Motor Vehicles Manufacturing, Motor Parts Manufacturing, Motorcycles Manufacturing, Motorcycles Parts Manufacturing, Transportation and Storage.
　
Manufacturers’ sentiments that have improved in the February survey and is expected to deteriorate over the next six months include:
None.
　
Manufacturers’ sentiments that have improved in the February survey and is expected to remain upbeat over the next six months include:
Real Estate Investment, Restaurants and Hotels.
　
Manufacturers’ sentiments that have improved in the February survey and the trend is expected to continue for the next six months include:
None.