The Taiwanese Economy in February 2023

Observing the recent international economic situation, the failure of three regional commercial banks in the United States and the financial crisis of Credit Suisse in Europe have caused liquidity panic in the financial market to heat up. Although the successive problems in the banking sector in the United States and Europe may lead to tightening credit conditions for households and enterprises, which will affect private consumption and investment performance, the US Federal Reserve (Fed) and European Central Bank (ECB) still believe that their banking systems are resilient and systemic risks are controllable. In addition, Fed and ECB both considered the inflation pressure as still serious at present; therefore, the Fed and ECB decided to hike the key interest rate by 25 bps and 50 bps respectively in March.
In terms of domestic manufacturing, benefiting from the increase in the number of working days with respect to lower base effect, domestic enterprises have accelerated the pace of resumption of work and production helping the demand for production and goods to pick up. The service industry has been benefited from the full COVID unblocking this year and the domestic demand is still strong, so the related service industry was also quite optimistic about the economic performance for the present and the near future. Regarding construction industry, since the public construction has been started one after another, which significantly surged the optimism of construction sector. As a result, the manufacturing, service and construction composite indicators issued by the Taiwan Institute of Economic Research (TIER) rose in chorus in February.
In terms of foreign trade, due to the still weak global economic demand, Taiwan’s exports in February 2023 decreased significantly by 17.1% compared with the same month of 2022, the consecutive four-month in double digit decrease. Regarding imports, Taiwan’s imports in February 2023 decreased by 9.4% compared with imports in February of 2022. Taiwan’s exports and imports from January till the end of February 2023 decreased by 19.2% and 13.3% year-on-year respectively.
Taiwan’s consumer price index (CPI) increased by 2.43% in February 2023 compared with the same month of previous year, which would be 0.62 percentage points lower than the inflation rate of previous month. The core inflation rate excluding prices of the energy and food increased by 2.55% in February 2023, which would be 0.43 percentage points lower than the core inflation rate in January 2022. In addition, the producer price index (PPI) increased by 4.10% in February 2023 on the year-on-year basis, which would be 1.84 percentage points lower than the previous month caused by the fact that the global commodity prices have been recently dropping.
As for exchange rate, the NTD went weaker due to the relative trend of USD exchange rate in February 2023. The NTD/USD stood at 30.48 in late February 2023, indicating a 1.40% depreciation. Regarding the over-night call rate; the lowest and highest rate in February 2023 stood at 0.555% and 0.558% respectively.

Business Survey Outcomes

The portion of manufacturing firms who perceived business were better than expected in the target month was 30.1% or increased by 19.0 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 25.1% or decreased by 19.1 percentage points than 44.2% of respondents perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 44.8% or increased by 0.2 percentage points than the ratio of previous month’s respondents perceiving constant business. Overall, manufacturing firms perceived the business in the target month was more optimistic compared with the previous month.
In addition, the portion of manufacturers who perceived business would be better in the next six months was 33.9% in the target month or decreased by 1.2 percentage points than 35.1% 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 16.8% or increased by 1.3 percentage points compared with 15.5% 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 49.3% or decreased by 0.1 percentage points compared with 49.4% of respondents feeling neutral about the business outlook one month earlier. Overall, manufacturing firms perceived the business in the near future was also more neutral compared with the previous month.
As a result, the manufacturing composite indicator for February 2023 adjusted for seasonal factors on moving average, saw an upward correction, and from a revision of as 88.07 points in January 2023 moved up to 91.19 points in February 2023. Figure 1 shows an increase of 3.12 points.
Moreover, the TIER service sector composite indicator for February 2023 on moving average also saw an upward correlation, and from a revision of as 91.76 points in January 2023 moved up to 94.97 points in February 2023. Figure 1 shows an increase of 3.21 points.
In addition, the TIER construction sector composite Indicator for February 2023 adjusted for the seasonal factors on moving average saw a downward correlation, and from a revision of 92.11 points in January 2023 went up to 93.31 points in February 2023. Figure 1 shows a increase of 1.20 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 February 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, Data Storage Media Units Manufacturing and Reproducing, Bicycles Manufacturing, Bicycles Parts Manufacturing.

Manufacturers’ sentiments that have been in decline in the February survey, but are expected to improve over the next six months include:
Food, Soft Drink Manufacturing, Audio and Video Electronic Products Manufacturing, Electronic Parts and Components Manufacturing, Retail Sales, Insurance.

Manufacturers’ sentiments that have been in decline in the February survey and are expected to remain sluggish over the next six months include:
Slaughtering, Prepared Animal Feeds Manufacturing, Porcelain and Ceramic Products Manufacturing, Glass and Glass Products Manufacturing, Electrical Appliances and Housewares Manufacturing, Wholesale.

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:
Edible Oil Manufacturing, Flour Milling and Grain Husking, Paper Manufacturing, Metal Structure and Architectural Components Manufacturing, Electrical Machinery, Electrical Machinery, Supplies Manufacturing and Repairing, Motorcycles Parts Manufacturing, Precision Instruments Manufacturing, Restaurants and Hotels.

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:
Manufacturing, Yarn Spinning Mills, Leather, Fur and Allied Product Manufacturing, Petroleum and Coal Products Manufacturing, Plastic Products Manufacturing, Non-metallic Mineral Products Manufacturing, Cement and Cement Products Manufacturing, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Electric Wires and Cables Manufacturing, Electronic Machinery, Transport Equipment Manufacturing and Repairing, Motor Vehicles Manufacturing, Education and Entertainment Articles Manufacturing, Construction, Basic Civil Structure Construction, Real Estate Investment, 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:
Frozen Food Manufacturing, Fabric Mills, Apparel, Clothing Accessories and Other Textile Product Manufacturing, Industrial Chemicals, Plastics and Rubber Raw Materials, Motor Parts Manufacturing, Motorcycles Manufacturing, Banks, Telecommunication Services.

Manufacturers’ sentiments that have improved in the February survey and the trend is expected to continue for the next six months include:
Textiles Mills, Printing, Petrochemicals Manufacturing, Man-made Fibers Manufacturing, Chemical Products Manufacturing, Rubber Products Manufacturing, Iron and Steel Basic Industries, Communications Equipment and Apparatus Manufacturing, Securities.