The Taiwanese Economy in February 2022

The fear of inflation is coming, threatening and very likely weakening the global economic recovery with a vengeance. Commodity prices have been surging because of 3 reasons: first, unprecedented loosing monetary operations conducted by world major central banks, such as the Fed and ECB; second, worldwide port congestions that slowdown the process of goods distribution; and third, ongoing Russia-Ukraine war that amplifies inflation risks. As a result, major forecasting agencies adjust their forecasts for this year's global GDP growth downward. The manufacturing, service and construction composite indicators issued by the Taiwan Institute of Economic Research (TIER) all declined in February 2022 at the same time.

However, Taiwan's economic performance in external markets has so far remained solid. Taiwan's exports in February 2022 increased significantly by 34.75% compared with the same month of 2021, the consecutive twelve-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 February 2022 increased by 35.32% compared with imports in February of 2021, also the consecutive twelve-month in double digit growth; lower base effect would also be the main cause. Taiwan's exports and imports in January and February 2022 gave a trade surplus as at US$ 10.82 billion or increase by 2.91% 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 strong in at least the first half of 2022.

Taiwan's consumer price index (CPI) increased by 2.36% in February 2022 compared with the same month of previous year, 0.48 percentage points lower than the inflation rate of previous month. The core inflation rate excluding prices of the energy and food increased by 1.65% in February 2022, 0.77 percentage points lower than the core inflation rate in January 2022. In addition, the wholesale price index (WPI) increased by 11.54% in February 2022 on the year-on-year basis, the consecutive eleven-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, 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 February 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 7.9% in February 2022. The NTD/USD stood at 28.021 in late February 2022, indicating a 0.69% 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 February 2022 due to the continued loose monetary operations by the Taiwan central bank (CBC) with respect to the current exchange rate situation; the lowest and highest over-night call rate in February 2022 stood at 0.079% and 0.082% respectively. The CBC however decided to raise its key interest rates by 0.25 percentage points on 17th March 2022.

Business Outlook

The portion of manufacturing firms who perceived business were better than expected in the target month was 17.9% or decreased by 9.0 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 28.0% or increased by 9.3 percentage points than 18.7% of respondents perceiving worse business of the previous month. The portion of manufacturing firms who perceived business remained constant in the target month was 54.1% or decreased by 0.4 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 pessimistic 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 41.5% in the target month or increased by 1.9 percentage points than 39.6% 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 9.1% or increased by 0.9 percentage points compared with 8.2% 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 49.4% or decreased by 2.8 percentage points compared with 52.2% 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 somewhat optimistic compared with the previous month.

However, the manufacturing composite indicator for February 2022 adjusted for seasonal factors on moving average, saw a downward correction, and from a revision of as 103.86 points in January moved down to 101.44 points in February 2022. Figure 1 shows a decrease of 2.42 points, a two-month of consecutive decrease.

Moreover, the TIER service sector composite indicator for February 2022 adjusted for seasonal factors on moving average also saw a downward correlation, and from a revision of as 96.17 points in January moved down to 94.07 points in February 2022. Figure 1 shows a decrease of 2.10 points, a two-month of consecutive decrease, too.

Last but not the least, the TIER construction sector composite Indicator for February 2022 adjusted for the seasonal factors on moving average saw a downward correlation as well, and from a revision of 109.94 points in January went down to 107.14 points in February 2022. Figure 1 shows a decrease of 2.80 points, a decrease for the first time after three months 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 February survey and are expected to deteriorate over the next six months include:
Plastics and Rubber Raw Materials, Rubber Products Manufacturing, Plastic Products Manufacturing, Motor Vehicles Manufacturing, Motorcycles Manufacturing, Wholesale, Securities.
　
● Manufacturers' sentiments that have been in decline in the February survey, but are expected to improve over the next six months include:
Soft Drink Manufacturing, Petroleum and Coal Products Manufacturing, Construction, Restaurants and Hotels.
　
● Manufacturers' sentiments that have been in decline in the February survey and are expected to remain sluggish over the next six months include:
Chemical Products Manufacturing, Electrical Appliances and Housewares Manufacturing, Basic Civil Structure Construction, Retail Sales.
　
● 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:
Textiles Mills, Yarn Spinning Mills, Industrial Chemicals, Petrochemicals Manufacturing, Man-made Fibers Manufacturing.
　
● 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:
Food, Frozen Food Manufacturing, Paper 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, Communications Equipment and Apparatus Manufacturing, Audio and Video Electronic Products Manufacturing, Precision Instruments Manufacturing, Telecommunication Services.
　
● 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, Edible Oil Manufacturing, Flour Milling and Grain Husking , Fabric Mills , Apparel, Clothing Accessories and Other Textile Product Manufacturing, Leather, Fur and Allied Product Manufacturing, Printing, Non-metallic Mineral Products Manufacturing, Glass and Glass Products Manufacturing, Cement and Cement Products Manufacturing, Fabricated Metal Products Manufacturing, Metal Dies, Screw, Nut Manufacturing, Transport Equipment Manufacturing and Repairing, Motorcycles Parts Manufacturing, Education and Entertainment Articles Manufacturing, Real Estate Investment, Banks, Insurance.
　
● 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:
Slaughtering, Machinery and Equipment Manufacturing and Repairing, Cutlery and Tools Manufacturing, Industrial Machinery, Electronic Parts and Components Manufacturing, Motor Parts Manufacturing, Bicycles Manufacturing, Bicycles Parts Manufacturing.
　
● Manufacturers' sentiments that have improved in the February survey and the trend is expected to continue for the next six months include:
Prepared Animal Feeds Manufacturing, Wood and Bamboo Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Electrical Machinery, Data Storage Media Units Manufacturing and Reproducing, Transportation and Storage.