The Taiwanese Economy in May 2023

Observing the recent international economic situation, the manufacturing Purchasing Managers' Index (PMI) for the United States, Europe, and China has continued to fall into the contraction zone, indicating persistent weakness in consumer momentum in major global markets. Additionally, in June, the US Federal Reserve temporarily halted interest rate hikes due to a cooling in inflation, while the European Central Bank continued to tighten its monetary policy due to significant inflation pressures. On the other hand, the People’s Bank of China lowered its key policy interest rates to stimulate the economy.
In the domestic manufacturing sector, although there has been a slight stabilization in demand for some information and communication products as well as certain traditional industries, leading to a slightly more optimistic view among most manufacturing firms compared to the previous month’s survey, overall end demand remains weak. Domestic exports and external sales continue to be sluggish, resulting in manufacturing firms maintaining a generally neutral outlook for both the current month and the next six months. The service industry has benefited from the rise in stock prices and the continuous widening of interest rate differentials domestically and internationally, leading to positive expectations for the current month's business performance in the financial sector. As for the construction industry, the test point for May once again turned downward, primarily due to a decline in the construction sector's business conditions and a conservative outlook for the real estate industry in the next six months.
According to the survey directed by the Taiwan Economic Research Institute (TIER), after conducting model simulations, the Manufacturing Business Composite Indicator continued its downward trend in May. On the other hand, the Service Business Composite Indicator showed an upward trend, while the Construction Business Composite Indicator once again turned downward.
In terms of foreign trade, due to the still weak global economic demand, Taiwan’s exports in May 2023 decreased by 14.06% compared with the same month of 2022, the consecutive nine-month decrease. Regarding imports, Taiwan’s imports in May 2023 decreased by 21.74% compared with imports in May of 2022. Taiwan’s exports and imports from the beginning of this year till the end of May 2023 gave a trade surplus of US$ 20.503 billion or decreased by 8.35% year-on-year.
Taiwan’s consumer price index (CPI) increased by 2.01% in May 2023 compared with the same month of previous year, or 0.33 percentage points lower than the inflation rate of previous month. The core inflation rate excluding prices of the energy and food increased by 2.57% in May 2023, which would be 0.15 percentage points lower than the core inflation rate in April 2023. In addition, the producer price index (PPI) decreased by 3.75% in May 2023 on the year-on-year basis, which would be 1.51 percentage points lower than the previous month caused by the fact that the global commodity prices have been significantly dropping.
As for exchange rate, the NTD went weaker due to the relative trend of USD exchange rate in May 2023. The NTD/USD stood at 30.766 in late May 2023, indicating a 0.08% depreciation. Regarding the over-night call rate; the highest and the lowest rate in May 2023 stood at 0.692% and 0.679% respectively with respect to the recent monetary policy by the central bank of Taiwan.

Business Survey Outcomes

The portion of manufacturing firms who perceived business were better than expected in the target month was 21.4% or increased by 11.5 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 29.6% or decreased by 13.1 percentage points than 42.7% of respondents perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 49.0% or increased by 1.5 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 optimistic compared with the previous month.
In addition, the portion of manufacturers who perceived business would be better in the next six months was 29.9% in the target month or increased by 4.6 percentage points than 25.3% 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 24.4% or increased by 0.7 percentage points compared with 23.7% 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 45.8% or decreased by 5.2 percentage points compared with 51.0% of respondents feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was more neutral compared with the previous month.
As a result, the manufacturing composite indicator for May 2023 adjusted for seasonal factors on moving average, saw a downward correction, and from a revision of as 91.23 points in April 2023 moved down to 89.30 points in May 2023. Figure 1 shows a decrease of 2.02 points.
Moreover, the TIER service sector composite indicator for May 2023 on moving average also saw an upward correlation, and from a revision of as 98.75 points in April 2023 moved up to 99.14 points in May 2023. Figure 1 shows an increase of 0.57 points.
In addition, the TIER construction sector composite Indicator for May 2023 adjusted for the seasonal factors on moving average saw a downward correlation, and from a revision of 94.42 points in April 2023 went down to 93.47 points in May 2023. Figure 1 shows a decrease of 0.95 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 May survey and are expected to deteriorate over the next six months include:
Wood and Bamboo Products Manufacturing, Machinery and Equipment Manufacturing and Repairing, Cutlery and Tools Manufacturing, Industrial Machinery, Bicycles Manufacturing, Bicycles Parts Manufacturing.

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

● Manufacturers’ sentiments that have been in decline in the May survey and are expected to remain sluggish over the next six months include:
Precision Instruments Manufacturing, Education and Entertainment Articles Manufacturing, Basic Civil Structure Construction.

● Manufacturers surveyed who felt the May outlook was the same as the previous month, but the outlook is expected to exacerbate over the next six months include:
Motorcycles Parts Manufacturing, Real Estate Investment.

● Manufacturers surveyed who felt the May outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Textiles Mills, Yarn Spinning Mills, Fabric Mills , Paper Manufacturing, Printing, Glass and Glass Products Manufacturing, Metal Dies, Metal Structure and Architectural Components Manufacturing, Communications Equipment and Apparatus Manufacturing, Data Storage Media Units Manufacturing and Reproducing, Wholesale, Securities.

● Manufacturers surveyed who felt the May outlook was the same as the previous month and the trend is expected to continue for the next six months include:
Manufacturing, Prepared Animal Feeds Manufacturing, Leather, Fur and Allied Product Manufacturing, Industrial Chemicals, Petrochemicals Manufacturing, Plastics and Rubber Raw Materials, Man-made Fibers Manufacturing, Chemical Products Manufacturing, Rubber Products Manufacturing, Non-metallic Mineral Products Manufacturing, Cement and Cement Products Manufacturing, Iron and Steel Basic Industries, Fabricated Metal Products Manufacturing, Screw, Nut Manufacturing, Electrical Machinery, Electrical Appliances and Housewares Manufacturing, Electronic Machinery, Electronic Parts and Components Manufacturing, Construction, Transportation and Storage.

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

● Manufacturers’ sentiments that have improved in the May survey and is expected to remain upbeat over the next six months include:
Food, Slaughtering, Frozen Food Manufacturing, Edible Oil Manufacturing, Flour Milling and Grain Husking, Soft Drink Manufacturing, Apparel, Clothing Accessories and Other Textile Product Manufacturing, Electrical Machinery, Supplies Manufacturing and Repairing, Electric Wires and Cables Manufacturing, Motor Parts Manufacturing, Motorcycles Manufacturing, Retail Sales, Restaurants and Hotels, Banks, Insurance, Telecommunication Services.

● Manufacturers’ sentiments that have improved in the May survey and the trend is expected to continue for the next six months include:
Petroleum and Coal Products Manufacturing, Plastic Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Audio and Video Electronic Products Manufacturing, Transport Equipment Manufacturing and Repairing, Motor Vehicles Manufacturing.