The Taiwanese Economy in January 2022

The long intertwining Russia-Ukraine conflict has recently escalated and become one of the biggest uncertainties in addition to the Omicron variant hindering the global economic recovery. Since both Russia and Ukraine are major countries producing and exporting raw materials, the geopolitical crisis has brought inflationary pressure further to the whole world. Both manufacturing and service composite indicators issued by the Taiwan Institute of Economic Research (TIER) dip slightly in January 2022 ending consecutive increasing patterns. The construction composite indicator however went up in the same months.

Taiwan's exports in January 2022 increased significantly by 16.7% compared with the same month of 2021, the consecutive eleven-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 January 2022 increased by 24.9% compared with imports in January of 2021, also the consecutive eleven-month in double digit growth; lower base effect would also be the main cause. Taiwan's exports and imports in January 2022 gave a trade surplus as at US$ 4.92 billion or decrease by 20.6% year-on-year due to base effect. As the export order have continued such momentum, it is also expected that Taiwan's exports will maintain solid in 2022.

Taiwan's consumer price index (CPI) increased by 2.84% in January 2022 compared with the same month of previous year, 0.22 percentage points higher than the inflation rate of previous month. The core inflation rate excluding prices of the energy and food increased by 2.42% in January 2022, 0.58 percentage points higher than the core inflation rate in December 2021. Therefore, the inflationary pressure still remains. In addition, the wholesale price index (WPI) increased by 10.83% in January 2022 on the year-on-year basis, the consecutive ten-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 conflict, the inflationary pressure is likely to go on for a while.

As for exchange rate, the NTD went a bit weaker due to the relatively stronger USD in January 2022. As the US Federal Reserve's upcoming policy is expected to be more hawkish in order to cope with the inflation rate standing at 7.5% in January 2022. The NTD/USD stood at 27.828 in late January 2022, indicating a 0.50% depreciation, whereas the NTD has been one of the weakest Asian currencies so far recently. Regarding the interest rate, it still remained low and steady in January 2022 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 January 2022 stood at 0.079% and 0.085% respectively.

Business Outlook

The portion of manufacturing firms who perceived business were better than expected in the target month was 26.6% or decreased by 1.6 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 18.1% or decreased by 2.8 percentage points than 20.9% perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 55.3% or increased by 4.4 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 more neutral compared with the previous month.

In addition, the portion of manufacturers who perceived business would be better in the next six months was 39.6% in the target month or increased by 4.1 percentage points than 35.5% feeling more optimistic about the future in the previous month. The portion of firms who perceived the economic outlook would be worsening was 8.4% or decreased by 4.4 percentage points compared with 12.8% 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 52.0% or increased by 0.3 percentage points compared with 51.7% feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was as a result also somewhat more neutral compared with the previous month.

The manufacturing composite indicator for January 2022 adjusted for seasonal factors on moving average, saw a downward correction, and from a revision of as 104.05 points in December 2021 moved down to 103.87 points in January 2022. Figure 1 shows a decrease of 0.18 points, the first dip after two months of continued mount.

The TIER service sector composite indicator for January 2022 adjusted for seasonal factors on moving average also saw a downward correlation, and from a revision of as 98.77 points in December 2021 moved down to 95.74 points in January 2022. Figure 1 shows a decrease of 3.03 points, the first dip after 5 months of consecutive increase.

In addition, the TIER Construction Sector Composite Indicator for January 2022 adjusted for the seasonal factors on moving average however saw an upward correlation, and from a revision of 108.91 points in December 2021 went up to 110.0 points in January 2022. Figure 1 shows an increase of 1.09 points, the third 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 January survey and are expected to deteriorate over the next six months include:
Motor Vehicles Manufacturing, Motorcycles Manufacturing, Securities.

Manufacturers' sentiments that have been in decline in the January survey, but are expected to improve over the next six months include:
Rubber Products Manufacturing.

● Manufacturers' sentiments that have been in decline in the January survey and are expected to remain sluggish over the next six months include:
Yarn Spinning Mills, Plastics and Rubber Raw Materials, Porcelain and Ceramic Products Manufacturing, Glass and Glass Products Manufacturing, Cement and Cement Products Manufacturing, Real Estate Investment, Wholesale.

● 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:
None.

● 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:
Paper Manufacturing, Petroleum and Coal Products Manufacturing, Iron and Steel Basic Industries, Metal Structure and Architectural Components Manufacturing, Electric Wires and Cables Manufacturing, Electronic Machinery, Communications Equipment and Apparatus Manufacturing, Audio and Video Electronic Products Manufacturing, Precision Instruments Manufacturing, Basic Civil Structure Construction, Restaurants and Hotels, 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:
Manufacturing, Printing, Industrial Chemicals, Petrochemicals Manufacturing, Man-made Fibers Manufacturing, Non-metallic Mineral Products Manufacturing, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Electrical Machinery, Supplies Manufacturing and Repairing, Data Storage Media Units Manufacturing and Reproducing, Transport Equipment Manufacturing and Repairing, Motorcycles Parts Manufacturing, Retail Sales, Banks, Insurance, Transportation and Storage.

● 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:
Apparel, Clothing Accessories and Other Textile Product Manufacturing, Leather, Fur and Allied Product Manufacturing, Electrical Appliances and Housewares Manufacturing, Electronic Parts and Components Manufacturing, Motor Parts Manufacturing, Bicycles Manufacturing, Bicycles Parts Manufacturing.

● Manufacturers' sentiments that have improved in the January survey and the trend is expected to continue for 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, Textiles Mills, Fabric Mills , Wood and Bamboo Products Manufacturing, Chemical Products Manufacturing, Plastic Products Manufacturing, Machinery and Equipment Manufacturing and Repairing, Cutlery and Tools Manufacturing, Industrial Machinery, Electrical Machinery, Education and Entertainment Articles Manufacturing, Construction.