In the first half of 2021, countries around the world made significant progress in vaccinating their respective populations against Covid-19 and consequently, European and American countries relaxed domestic controls which has started driving global market demand and pushing the world economy towards recovery. Benefiting from proliferation of emerging technology applications and contactless businesses, Taiwan’s import and export trade continued to grow. The real GDP growth rate in the first quarter reached 8.92%. The epidemic broke out in mid-May, and the government raised the level of alert. Looking forward to the second half of the year, the government is actively promoting vaccination in order to effectively control the epidemic and support the growth momentum of consumption and foreign trade. The projected real economic growth rate for 2021 has been revised to 5.05%.

Real private consumption in the first quarter of 2021 increased by 2.11%, mainly due to domestic tourism, enthusiasm for consumption and repeated peaks in the stock market that trigger wealth effects. Recently, the domestic epidemic situation has heated up, the national three-level alert has been implemented, epidemic prevention restrictions have been expanded, and people have reduced their outings. In June, retail sales fell by 13.26% (annualized). Department stores, fabrics and apparel products declined by nearly 60%, while catering sales plummeted 39.94% compared with the same period last year. This impacted the manufacturing industry and led to a downturn in economic activities. However, if the epidemic is gradually brought under control, in conjunction with the government’s planned revitalization measures, and the development of contactless outbound e-commerce, consumption rebound is expected in the second half of the year. Taking into account prices and low base period factors, private consumption growth is estimated to be 2.05% in 2021.

Real private investment has risen 13.70% in the first quarter. Due to the impact of the trade war and the epidemic, manufacturers are pushing for localization of supply chains. The effect of base transfer continued, and because of the global economic revival, semiconductor manufacturers continued to invest in advanced process equipment and aviation. The shipping industry is expanding its equipment base and 5G network construction is accelerating while manufacturers are expanding capital expenditures. Capital equipment imports (in US dollars) increased by 29.16% in the first half of this year, indicating that investment momentum continues to grow. It is estimated that the annual growth rate of private investment in 2021 will be 8.90%. On the other hand, the government’s measures for accelerating development of urban renewal and social housing, as well as offshore wind power, solar photovoltaic and other green energy public projects, it is estimated that fixed capital formation in 2021 will grow by 7.54%.

Global trade is growing vigorously. Terminal demand in European and American countries is increasing, and the demand for emerging technology applications and remote equipment continues to rise. The annual growth rates of real goods and services exports and imports in the first quarter were 21.31% and 15.54% respectively. The annual growth rates of exports and imports for the first 6 months reached 30.99% and 28.63% (in U.S. dollars), respectively. Export orders for both manufacturing and traditional industries are quite satisfactory. The epidemic has promoted the development of home office and school and enterprise digitalization. The triangular trade momentum of electronic products and information and communication products is strong. Export demand has been boosted by expansion of infrastructure in major countries, and this will further drive imports. After considering the price factor, it is expected that exports and imports of real goods and services in 2021 will grow 15.21% and 15.98% respectively.

Consumer price index (CPI) increased due to rising international energy prices, fuel costs, air travel prices, transportation fees, and food prices, with an average increase of 1.47%, compared to the first six months of last year. The core consumer price index increased by 1.18% during the same period. In the first six months, the wholesale price index (WPI) has risen 5.84% compared with the same period last year because of rising demand for crude oil, mineral products and bulk raw materials. Considering that the prices of agricultural and industrial raw materials will continue to rise, operating costs of manufacturers too will increase, and as the base is low, CPI and WPI are expected to rise 1.78% and 6.15% respectively in 2021.

In the domestic job market, the epidemic has hit the people’s livelihood and domestic demand for services; the number of unpaid leave increased in July. According to the latest announcement by the Ministry of Labor on July 26 to the effect that the labor and employers have negotiated reduction in working hours. The number of affected employees reached 44,973, especially in hospitality, catering, and wholesale industries.
Unemployment in the retail industry is the worst. The average unemployment rate in the first half of this year was 3.93%. Due to the effects of the graduation wave and the evolution of the epidemic, the unemployment situation in the second half of the year is not expected to improve. The unemployment rate in 2021 is expected to be about 3.95%. In terms of money supply, the cumulative annual growth rates of M1B and M2 in the first five months were 17.71% and 8.85%, respectively. Funds in the global market have been abundant and available at low interest rates. Considered together with the continuous implementation of domestic epidemic relief plans, M1B and M2 are expected to be up by 13.62% and 8.03% respectively.

Looking forward to the second half of the year, major economies in the world are likely to vaccinate large parts of their populations, which will enable easing of restraints and greatly boost global consumption momentum and trade. The World Bank’s economic forecast released in June expects expansion of the global economy and increase in world trade in 2021. The forecast predicts strong growth momentum. However, the global epidemic situation is unpredictable, and the uneven popularity of vaccination will still affect domestic people’s livelihood and the economy in general. The industry is also facing the risks of climate change which is affecting water shortages and power shortages, as well as global port congestion, shortage of containers, and high freight rates. In addition, geopolitical risks continue, and it is necessary to pay attention to rising financial market risks, tightening of the currently loose monetary policy in the United States, shocks to global markets and long-term inflation. Considering all factors, we expect that at the 50% confidence interval the real GDP growth will be in the range of 3.98% to 6.25%.

(Institute of Economics)