The Taiwanese Economy in August 2023

Observing recent developments in the international economy, the United States has shown stable economic performance, and there has been some improvement in China’s manufacturing and production activities. The demand from major economies is gradually rebounding, coupled with rising raw material prices driving replenishment demand, leading to an improvement in the global economic situation. To some extent, this has also positively influenced Taiwan's economic indicators such as exports and production.
In Taiwan’s domestic manufacturing sector, the increase in international crude oil prices has pushed up the prices of petrochemical products. Additionally, steel prices have risen along with international steelmaking raw material prices, resulting in a smaller year-on-year decrease in exports and export orders for traditional industries compared to the previous month. This has led traditional industry owners to perceive better economic performance for the current month compared to the previous survey. However, due to weak demand for electronic end-products and reduced momentum in technology product shipments compared to the past, technology industry participants remain somewhat conservative in their outlook for the time being and the near future.
The service industry in Taiwan has been affected by lackluster performance in domestic and international stock markets, with both stock prices and trading volumes declining. This has had an impact on financial-related industries. In the construction industry, the launch of several public projects in August and increased activity in commercial and office construction have boosted optimism. Additionally, with the government’s continued commitment to infrastructure projects, the construction industry has a positive outlook for the current month and the next six months.
Regarding the real estate industry, while there has been an impact on the pre-sale housing market due to amendments to average land rights regulations, some buyers have shifted to the existing home market. Furthermore, the “Youth Secure Homeownership 2.0” policy has officially been implemented, providing positive benefits for the real estate market’s transaction volume.
According to a survey by the Taiwan Institute of Economic Research (TIER), after model simulations, the Manufacturing Composite Indicator in August continued to rise, although the increase was limited. Therefore, it is assessed that the manufacturing sector’s outlook on the economy remains unchanged compared to the previous month. The Service Sector Composite Indicator, on the other hand, shifted from a three-month continuous upward trend to a decline. Meanwhile, the Construction Sector Composite Indicator has shown its third consecutive month of improvement.
In terms of foreign trade, the boost from the second half of the year’s peak season, which propelled the shipment of certain technology products, coupled with a convergence in the decline of traditional industry exports, led to a reduction in the year-on-year export decline rate in August to -7.30%. On the import side, factors such as conservative inventory demand from manufacturers, cautious semiconductor equipment investments, and the impact of falling prices for agricultural and industrial raw materials continued to have a significant impact. This resulted in substantial year-on-year declines in the import of agricultural and industrial raw materials as well as capital equipment. Additionally, the year-on-year growth rate for consumer goods imports turned negative, causing the year-on-year import decline in August to widen to -22.88%. Cumulatively for the period from January to August this year, exports declined by 15.74% compared to the same period last year, while imports declined by 20.51%. In total, the trade surplus for the first eight months of 2023 amounted to $43.523 billion, representing a growth of 24.59%.
Taiwan’s consumer price index (CPI) increased by 2.52% in August 2023 compared with the same month of previous year, or 0.64 percentage points higher than the inflation rate of previous month. The core inflation rate excluding prices of the energy and food increased by 2.56% in August 2023, which would be 0.17 percentage points lower than the core inflation rate in July 2023. In addition, the producer price index (PPI) decreased by 0.06% in August 2023 on the year-on-year basis, which would be 3.07 percentage points higher than the previous month. The cumulative year-on-year Consumer Price Index (CPI) for January to August this year is 2.29%, while the Producer Price Index (PPI) has a year-on-year decrease of -0.68%.
In August 2023, despite the job-seeking season due to recent graduations, the unemployment rate in Taiwan held steady at 3.56%, the same as the previous month, with a 0.23 percentage point decrease compared to the same month last year. The average unemployment rate for January to August was 3.52%, down 0.17 percentage points from the previous year. Wage-wise, in July 2023, the total monthly wage increased by 1.66% compared to the same month in 2022, reaching NT$ 59,221. The regular monthly wage for July increased by 2.51% year-on-year to NT$ 45,520. After adjusting for inflation, the real regular monthly wage for January to July 2023 showed a modest 0.21% growth compared to the same period in 2022, totaling NT$ 41,504. However, the real total monthly wage for January to July 2023 decreased by 0.67% compared to the same period in 2022, reaching NT$ 56,338.
In the domestic financial markets, the currency market remained stable. In August 2023, the overnight interbank lending rate in the financial sector had a high of 0.690%, a low of 0.680%, and a weighted average rate of 0.683%. This represented a slight increase of 0.002 percentage points compared to the previous month and a significant increase of 0.377 percentage points compared to the same month in 2022. Regarding exchange rates, the financial market anticipated that the Federal Reserve in the United States would maintain a high-interest-rate environment for a longer duration, which led to a weaker performance of the Asian currencies. Additionally, foreign investors significantly sold Taiwanese stocks and repatriated funds, causing the New Taiwan Dollar (NTD) exchange rate to depreciate. By the end of the month, the exchange rate stood at 31.854 NTD to 1 USD, reflecting a depreciation of 1.33%.

Business Survey Outcomes

The portion of manufacturing firms who perceived business were better than expected in the target month was 20.7% or increased by 3.0 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 27.5% or decreased by a 0.6 percentage point than 28.1% of respondents perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 51.8% or decreased by 2.4 percentage points than the ratio of previous month’s respondents perceiving constant business. Overall, manufacturing firms perceived the business in the target month was neutral.
In addition, the portion of manufacturers who perceived business would be better in the next six months was 18.6% in the target month or decreased by 5.1 percentage points than 23.7% 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 25% or increased by 1.9 percentage points compared with 23.1% 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 56.4% or increased by 3.1 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 also neutral.
As a result, the manufacturing composite indicator for August 2023 adjusted for seasonal factors on moving average, saw an upward correction, and from a revision of as 91.48 points in July 2023 moved up to 91.92 points in August 2023. Figure 1 shows an increase of 0.44 points.
Moreover, the TIER service sector composite indicator for August 2023 on moving average also saw a downward correlation, and from a revision of as 100.25 points in July 2023 moved down to 97.26 points in August 2023. Figure 1 shows a decrease of 2.99 points.
In addition, the TIER construction sector composite Indicator for August 2023 adjusted for the seasonal factors on moving average saw an upward correlation, and from a revision of 98.77 points in July 2023 went up to 103.36 points in August 2023. Figure 1 shows an increase of 4.59 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 August survey and are expected to deteriorate over the next six months include:
Machinery and Equipment Manufacturing and Repairing, Cutlery and Tools Manufacturing, Industrial Machinery, Bicycles Parts Manufacturing.

● Manufacturers’ sentiments that have been in decline in the August survey, but are expected to improve over the next six months include:
Wholesale, Insurance.

● Manufacturers’ sentiments that have been in decline in the August survey and are expected to remain sluggish over the next six months include:
Electric Wires and Cables Manufacturing, Securities.

● Manufacturers surveyed who felt the August outlook was the same as the previous month, but the outlook is expected to exacerbate over the next six months include:
Cement and Cement Products Manufacturing, Bicycles Manufacturing.

● Manufacturers surveyed who felt the August outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Apparel, Clothing Accessories and Other Textile Product Manufacturing, Leather, Fur and Allied Product Manufacturing, Metal Dies, Metal Structure and Architectural Components Manufacturing, Retail Sales, Restaurants and Hotels, Banks, Telecommunication Services.

● Manufacturers surveyed who felt the August outlook was the same as the previous month and the trend is expected to continue for the next six months include:
Manufacturing, Frozen Food Manufacturing, Wood and Bamboo Products Manufacturing, Non-metallic Mineral Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Iron and Steel Basic Industries, Fabricated Metal Products Manufacturing, Screw, Nut Manufacturing, Electrical Machinery, Electrical Appliances and Housewares Manufacturing, Electronic Machinery, Communications Equipment and Apparatus Manufacturing, Electronic Parts and Components Manufacturing, Motor Parts Manufacturing, Motorcycles Parts Manufacturing, Precision Instruments Manufacturing, Education and Entertainment Articles Manufacturing, Real Estate Investment, Transportation and Storage.

● Manufacturers’ sentiments that have improved in the August survey and is expected to deteriorate over the next six months include:
Soft Drink Manufacturing, Petrochemicals Manufacturing.

● Manufacturers’ sentiments that have improved in the August survey and is expected to remain upbeat over the next six months include:
Edible Oil Manufacturing, Flour Milling and Grain Husking, Textiles Mills, Yarn Spinning Mills, Fabric Mills, Man-made Fibers Manufacturing, Petroleum and Coal Products Manufacturing, Glass and Glass Products Manufacturing, Electrical Machinery, Supplies Manufacturing and Repairing, Data Storage Media Units Manufacturing and Reproducing, Transport Equipment Manufacturing and Repairing, Motor Vehicles Manufacturing, Motorcycles Manufacturing, Construction, Basic Civil Structure Construction.

● Manufacturers’ sentiments that have improved in the August survey and the trend is expected to continue for the next six months include:
Food, Slaughtering, Prepared Animal Feeds Manufacturing, Paper Manufacturing, Printing, Industrial Chemicals, Plastics and Rubber Raw Materials, Chemical Products Manufacturing, Rubber Products Manufacturing, Plastic Products Manufacturing, Audio and Video Electronic Products Manufacturing.