The Taiwanese Economy in May 2022

Observing the recent international economic situation, the Russian-Ukraine war has not ended, which has made the global inflationary pressure and ramifications unabated. In addition, the collapse of financial assets has reduced the willingness of people to consume and enterprises to invest. The OECD has all cut its forecasts for global economic growth this year, and the World Bank has warned of a growing risk of stagnant inflation across the world. In the domestic manufacturing industry, although the demand for foundry and packaging and testing is still booming, the demand for consumer electronic products continues to decline, causing the related supply chain to start the adjustment of inventory and orders. Manufacturers' views are polarized. Although the service industry is facing the spread of the pandemic, which reduces the willingness of people to dine out, and the property and casualty insurance industry is affected by the COVID prevention insurance indemnity and the increase in indemnity preparations, the catering industry and the insurance industry are nevertheless optimistic about the economic performance of the month. Given the “coexistence of COVID” has become a under normal circumstances, the Taiwanese government continues to loosen border controls, which is expected to drive business and tourism activities to become more popular, and people's interest in traveling will gradually recover. The service and construction composite indicators issued by Taiwan Institute of Economic Research (TIER) both went up, despite the manufacturing composite indicator declined in May 2022.
Taiwan’s economic performance in external markets has so far still remained rather good. Taiwan’s exports in May 2022 increased significantly by 12.50% compared with the same month of 2021, the consecutive fifteen-month in double digit growth, as a result of a strong market demand for Taiwan’s ICT parts and components and other quality merchandises. Regarding imports, Taiwan’s imports in May 2022 increased by 26.68% compared with imports in May of 2021, also the consecutive fifteen-month in double digit growth. Taiwan’s exports and imports from January till the end of May 2022 gave a trade surplus as at US$ 23.07 billion or decrease by 12.07% year-on-year due to more costly in imports of commodities.
Taiwan’s consumer price index (CPI) increased by 3.39% in May 2022 compared with the same month of previous year, which would be 0.01 percentage points higher than the inflation rate of previous month. The core inflation rate excluding prices of the energy and food increased by 2.60% in May 2022, which would be 0.07 percentage points higher than the core inflation rate in April 2022. In addition, the wholesale price index (WPI) increased by 16.62% in May 2022 on the year-on-year basis, the consecutive fourteen-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 yet resolved soon. With respect to the ongoing Russia-Ukraine war as well as China’s previous lockdown policy and its ramifications on regional supply chains, the inflationary pressure is likely to go on for a while.
As for exchange rate, the NTD went weaker first and then turned stronger due to the relative trend of USD exchange rate in May 2022. As the US Federal Reserve’s upcoming policy is relatively more hawkish in order to cope with the inflation rate standing at 8.6% in May 2022; however, the stronger USD turned weaker in late May. The NTD/USD stood at 29.065 in late May 2022, indicating a 1.41% appreciation. The Taiwan central bank (CBC) raised its key interest rates by 0.125 percentage points on 17th June 2022. Regarding the over-night call rate; the lowest and highest rate in May 2022 stood at 0.18% and 0.186% respectively.

Business Survey Outcomes

The portion of manufacturing firms who perceived business were better than expected in the target month was 23.4% or increased by 4.5 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 34.1% or increased by 0.1 percentage points than 34.0% of respondents perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 42.5% or decreased by 4.6 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 about the business conditions compared with the previous month.
In addition, the portion of manufacturers who perceived business would be better in the next six months was 25.0% in the target month or decreased by 2.3 percentage points than 27.3% 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 28.9% or increased by 9.4 percentage points compared with 19.5% 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 46.1% or decreased by 7.2 percentage points compared with 53.3% of respondents feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was as a result still somewhat pessimistic compared with the previous month.
As a result, the manufacturing composite indicator for May 2022 adjusted for seasonal factors on moving average, saw a downward correction, and from a revision of as 94.79 points in April moved down to 92.58 points in May 2022. Figure 1 shows a decrease of 2.21 points, a five-month of consecutive decrease.
Moreover, the TIER service sector composite indicator for May 2022 adjusted for seasonal factors on moving average saw an upward correlation, and from a revision of as 95.26 points in April moved up to 95.86 points in May 2022. Figure 1 shows an increase of 0.60 points, a three-month of consecutive increase.
Last but not the least, the TIER construction sector composite Indicator for May 2022 adjusted for the seasonal factors on moving average saw an upward correlation, and from a revision of 96.10 points in April went up to 98.14 points in May 2022. Figure 1 shows an increase of 2.04 points, the first hike after a three-month of consecutive decrease.

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:
Cutlery and Tools Manufacturing, Motorcycles Manufacturing.

● Manufacturers’ sentiments that have been in decline in the May survey, but are expected to improve over the next six months include:
Soft Drink Manufacturing , Printing, Restaurants and Hotels.

● Manufacturers’ sentiments that have been in decline in the May survey and are expected to remain sluggish over the next six months include:
Cement and Cement Products Manufacturing, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Electrical Machinery, Electrical Appliances and Housewares Manufacturing, Transport Equipment Manufacturing and Repairing, Motor Vehicles Manufacturing, Education and Entertainment Articles Manufacturing, Construction, Securities.

● 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:
Textiles Mills, Yarn Spinning Mills, Fabric Mills , Apparel, Clothing Accessories and Other Textile Product Manufacturing, Wood and Bamboo Products Manufacturing, Glass and Glass Products Manufacturing, Machinery and Equipment Manufacturing and Repairing.

● 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:
Motor Parts Manufacturing, Retail Sales, Wholesale, Telecommunication Services.

● 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, Slaughtering, Leather, Fur and Allied Product Manufacturing, Paper Manufacturing, Industrial Chemicals, Petrochemicals Manufacturing, Plastics and Rubber Raw Materials, Chemical Products Manufacturing, Rubber Products Manufacturing, Plastic Products Manufacturing, Non-metallic Mineral Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Iron and Steel Basic Industries, Metal Structure and Architectural Components Manufacturing, Electrical Machinery, Supplies Manufacturing and Repairing, Electric Wires and Cables Manufacturing, Electronic Machinery, Electronic Parts and Components Manufacturing, Motorcycles Parts Manufacturing, Basic Civil Structure Construction, Real Estate Investment, Banks, Insurance, Transportation and Storage.

● Manufacturers’ sentiments that have improved in the May survey and is expected to deteriorate over the next six months include:
Man-made Fibers Manufacturing, Industrial Machinery, Data Storage Media Units Manufacturing and Reproducing.

● Manufacturers’ sentiments that have improved in the May survey and is expected to remain upbeat over the next six months include:
Food, Frozen Food Manufacturing, Edible Oil Manufacturing, Flour Milling and Grain Husking , Communications Equipment and Apparatus Manufacturing, Bicycles Manufacturing, Bicycles Parts Manufacturing, Precision Instruments Manufacturing.

● Manufacturers’ sentiments that have improved in the May survey and the trend is expected to continue for the next six months include:
Prepared Animal Feeds Manufacturing, Audio and Video Electronic Products Manufacturing.