In the first half of 2022, the world was affected by the Russia-Ukraine war, which pushed prices of energy and food up. Reappearance of the COVID-19 epidemic in Mainland China and implementation of lockdown measures in many cities exacerbated the already disruptive supply chain disorders. Global inflation remained high, adding to uncertainty of economic growth. However, in Taiwan, in the first quarter of the current financial year, demand for innovative technological applications continued to be strong and digital transformation progressed further. Both import and export orders continued to grow. The real GDP growth rate in the first quarter reached 3.14%. However, apprehensions about a new wave of domestic epidemic have grown. In the face of domestic and foreign political and economic uncertainties, pressure on economic growth is likely to be felt in the second half of the year. The projected real economic growth rate for 2022 has been revised to 3.52%.
Real private consumption in the first quarter of 2022 grew 0.46%. Fears of resurgence of the epidemic have resulted in heightened public awareness about the need for self-protection. The willingness to go out to consume has receded significantly, which suppressed demand for catering, tourism and other related services. In the first half of the year, consumer confidence declined month by month. However, at present, concerns about the epidemic are gradually receding as infected patients display less severe effects. In the second half of the year, it is expected that consumption will rebound. Taking into account prices and low base period factors, private consumption growth is estimated to be 2.93% in 2022.
Real private investment rose 6.64% in the first quarter. Semiconductor manufacturers added process equipment, and the aviation and transportation industry too expanded its capacity. Manufacturers have reported increased capital spending. Capital equipment imports (in US dollars) increased by 14.33% in the first half of this year, indicating that supply chains are shifting back to Taiwan. Taking into account prices and high base period factors, private investment growth is estimated to be 4.39% in 2022. Because of active promotion of green energy public construction investment by the government and public utilities is expected to result in fixed capital formation growing 4.45% in 2022.
Due to innovative applications of emerging technologies and the trend toward digitalization, global demand for high-end chips continues to rise. Imports are growing because of export-derived demand for raw materials and manufacturers’ higher purchases of capital equipment. Annual growth rates of real goods and services exports and imports in the first quarter were 8.95% and 8.35% respectively. Annual growth rates of exports and imports for the first 6 months reached 19.24% and 24.76% (in U.S. dollars), respectively. However, external factors such as global inflationary pressure and China’s lockdown measures are affecting Taiwan’s foreign trade. Considering the high growth in the base period, and after taking into account the price factor, it is expected that exports and imports of real goods and services in 2022 will grow 5.64% and 4.75% respectively.
Global inflation continued to rise in the first half of the year, especially due to the Russia-Ukraine war and the sanctions imposed by many countries on Russia, which made energy and bulk commodity prices soar, intensifying the pressure on global commodity prices. On average, the consumer price index (CPI) during the first six months in 2022 increased by 3.13%. The core consumer price index increased by 2.41% during the same period. The wholesale price index (WPI) has risen 14.48% compared with the same period last year. In view of the fact that global supply-side problems emanating from war and extreme weather incidents have pushed up domestic inflation since domestic producers are faced with rising costs of raw materials and electricity. The probability of raising prices of end products has greatly increased, and increase in costs is likely to be passed on to the consumer. However, commodity prices are unlikely to decline quickly. CPI and WPI are expected to rise 3.16% and 11.31% respectively in 2022.
In the domestic job market, instances of employers granting unpaid leave have increased recently. Average rate of unemployment in the first five months of the year was 3.65%. The accommodation and catering industry, wholesale and retail industries, and other domestic demand-oriented service industries are still suffering adverse effects pf the epidemic. The unemployment rate in 2022 is expected to be about 3.71%. In terms of money supply, as the world’s major economies started raising interest rates, Taiwan has also adopted a tighter monetary policy. The cumulative annual growth rates of M1B and M2 in the first five months were 10.17% and 8.03%, respectively. Growth of money supply will now slow down. M1B and M2 are expected to be up by 6.89% and 7.04% respectively.
Looking forward to the second half of the year, geopolitical risks such as continued concerns about the epidemic and the Russia-Ukraine war will affect supply and demand of raw materials such as energy, grains and base metals. Disruptions in supply chains and other bottlenecks may result in the phenomenon of high global inflation persisting. The tightening of monetary policy and acceleration of interest rate hikes by the United States has affected the volatility of the financial markets. In a recent report issued on July 12th, the IMF drastically reduced its forecast for US 2022 GDP growth to 2.3%. It should be noted that rising prices and rising interest rates will curb economic activities, weaken consumers’ purchasing power, and increase the risk of economic downturn in global economy. Taiwan is a small open economy and it too may experience slower growth because of its global linkages. Considering all factors, we expect that at the 50% confidence interval the real GDP growth will be in the range of 2.44% to 4.74%.