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Taiwan’s Economy Stays in Contraction but Shows Signs of Improvement

Taiwan’s economy stayed in contraction mode for the ninth consecutive month in July, but an index gauging the economic climate showed signs of improvement, indicating the local economy has hit the bottom, the National Development Council (NDC) said Monday.

The composite index of economic indicators compiled by the NDC, the top economic planning agency in the country, stood at 15 points in July, which remained in the “blue light” category from nine to 16, but rose two points from a month earlier.

However, in July the leading indicators, which assess the economic climate over the next six months, fell 0.27 percent from a month earlier to 99.09, though the month-on-month fall narrowed from a decline of 0.33 percent in June, the data indicated.

The NDC uses a five-color system to gauge the country’s economic performance, with blue indicating economic contraction, yellow-blue representing sluggishness, green signifying stable growth, yellow-red referring to a warming economy, and red pointing to an overheated or booming economy.

According to the NDC, the increase in the composite index resulted from a one point increase in the index’s stock price change factor, which flashed a yellow red light in July, improving from a green light in June, and another one point hike in the money supply factor, which flashed a yellow-blue light, an upgrade from a blue light.

The other seven factors in the composite index, such as industrial production, non-farm payrolls, merchandise exports, machinery and electric equipment imports, sales posted by the manufacturing sector, revenue generated by retail, wholesale and food/beverage industries, and business sentiment among manufacturers flashed the same light in July as they did in June, the NDC said.Graphic: National Development Council

Speaking with reporters, Chiu Chiu-ying (邱秋瑩), deputy director of the NDCs’ Department of Economic Development, said the latest composite index provided positive signs for the local economy indicating recovery.

In addition, while production and trade remain weak, growing demand for artificial intelligence devices and cloud and data center applications made manufacturers more upbeat about their operations in July than in June, Chiu said.

In terms of the leading indicators, which moved lower for the fourth consecutive month in July, the sub-indexes for export orders, money supply, employment, and semiconductor equipment imports moved lower from a month earlier.

In contrast, the sub-indexes for the remaining three factors — stock price changes, the floor area of new housing projects, and business sentiment among manufacturers — moved higher from a month earlier in July.

Despite the decline in the leading indicators in July, Chiu said the fall has narrowed compared with June, indicating a better outlook for the local economy, Chiu said.

Looking ahead, Chiu said, Taiwan expects to benefit from peak season effects in the second half of this year on the back of emerging technologies, such as AI and efforts by international brands to launch new consumer electronic gadgets.

Domestic consumption is expected to continue to grow in the post COVID-19 era, while the local job market is forecast to stay stable, Chiu said.

It is also possible the local economy will climb out of the blue light or contraction mode in the fourth quarter of this year with exports likely to return to a growth trend, he added.

However, uncertainties over the global economy remain and the continued rate hike cycle and geopolitical tensions could still impact the local economy, Chiu said.

Source: Focus Taiwan