Economy

Confidence in local economy weakens to 2-year low in May survey

Confidence in the domestic economy weakened to its lowest level in more than two years amid a surge in domestic COVID-19 cases, and the prospect of major central banks around the world tightening their monetary policies, according to a new survey from Cathay Financial Holding Co.

Cathay Financial, one of Taiwan’s leading financial holding firms, said that confidence had also been knocked by concerns over the impact on the global supply chain of COVID-19 lockdowns in several major Chinese industrial cities, such as Shanghai, Kunshan, and Suzhou, where Taiwanese companies have operations.

Cathay Financial said about 24.2 percent of the respondents in a survey conducted from May 1 to 7 thought the local economy would improve over the next six months, while 50.1 percent of them said the local economy would deteriorate over the next six months.

The results saw Cathy’s economic optimism index for the next six months fall from minus 16.0 in April to minus 25.9 in May, its lowest level since May 2020, according to the firm.

The current economic conditions optimism index also dropped from minus 16.5 in April to minus 43.8 in May, Cathay Financial added.

Job market, wage
Amid weakened confidence in the domestic economy, those surveyed also appeared more downbeat about the local job market, with the optimism index over the next six months trending lower from minus 12.1 in April to minus 24.6 in May.

According to the survey, the current job market optimism index also fell from minus 15.8 in April to minus 28.8 in May.

In addition, optimism regarding wage increases over the next six months dropped from 7.1 in April to 0.6 in May.

With Taiwan’s central bank kicking off a rate hike cycle in March in a bid to boost buying costs, Cathay Financial said the willingness to buy big-ticket items such as homes and cars was affected, with the index gauging the willingness to buy homes falling from minus 2.3 in April to minus 8.3 in May, a new six-month low, the survey found.

With funds draining from the local market in a rush to buy U.S. dollar-denominated assets, the local equity market came under pressure, which led to a significant fall in the optimism index toward share prices, dropping to minus 12.9 in May from April’s 2.9l, and pushing down the index assessing the appetite to take risks from 12 to 2.9.

Respondents in May’s survey estimated that Taiwan’s 2022 economic growth would hit 3.09 percent, down from 3.30 percent in the April poll, with 81 percent of those surveyed expecting economic growth of 2 percent or higher.

Those surveyed were more downbeat with regards to the local economy relative to the Directorate General of Budget, Accounting and Statistics’s (DGBAS) late-February economic growth forecast the economic growth would hit 4.42 percent in 2022.

Yang Chin-long (楊金龍), governor of the local central bank, last week expressed his doubt that Taiwan would report a gross domestic product (GDP) increase of more than 4 percent this year, citing uncertainty created by rising inflation and geopolitical risks. The DGBAS is expected to update its GDP forecast later this month.

Those surveyed on average estimated that the consumer price index (CPI) would grow 2.66 percent in 2022, breaching the 2 percent alert set by the central bank, compared with a 2.36 percent increase forecast in April.

The survey collected 21,129 valid online questionnaires from clients of Cathay Life Insurance and Cathay United Bank, which are wholly owned by Cathay Financial.