COVID-19 has rapidly spread worldwide that severely blocks mobility. However, Taiwan has the least impact by pandemic by viewing the positive GDP growth of both manufacturing and service industry in the first quarter of this year. In the past two years, the activeness of finance and insurance industry results from taking advantage of the "U.S.-China Trade War" which accelerates the return of investment from Taiwanese businessmen plus strong demand of funds and the government's bailout plan. The service industry having fragile structure still can not completely overcome the economic impact by pandemic. Both Cyclical Leading and Peer Composite Index for service industries declined faster in 2020 Q1. If there is no major turnaround, the peer composite index, which can predict the trend of GDP, will gradually enter the "recession interval" (nearly -1.5 standard deviations) in the second half of the year. 

　　Commerce Development Research Institute announces “Taiwanese Commercial Service Business Cycle Peer Composite Index” today : COVID-19 pandemic has reversed the economic outlook which was gradually optimistic, directly causing a global and composite "mobility" blocking effect, and threatened human life and property safety. In Business Cycle Index system, the leading, peer, and backward indicators are all affected simultaneously even though some online virtual trading, delivery platforms and a few anti-pandemic related industries have positive impact. COVID-19 accelerates the decline of most of the downward system indicators, and the originally upward indicators have weakened. Therefore, the leading and peer composite indexes have seen downwards.

Figure 1. Business Cycle Peer Index Composite Index Trend and Prediction

Explanation: According to the historical experience of this system, the change of the standardized cyclic composite index indicates that upward movements indicate rising business conditions (recovery), downward movements indicate falling business conditions (slowness or decline), between 0 and 1.5 σ indicates recovery, and more than 1.5 σ indicates prosperity; between 0 and negative 1.5 σ Slowness or recession, below 1.5 σ indicates depression.

A) The actual value of the Cyclical Leading Composite Index for Service Industries peaked in August 2018, and then fell all the way continuing until April (2020). Its originally moderate downward trend was accelerated by the pandemic.

The reason is that the "real private fixed capital formation" began to stop declining and rising in April 2018. In April 2019, it began to surpass the long-term trend value (100), and then the upward trend was strengthened. The growth rate in the first quarter of this year was no longer than 1/6 of last September. The employment sector performed well at the end of (2019), but the number of acceptances for initial recognition of unemployment benefits has increased significantly due to the pandemic. Although there is a blessing of financial insurance, the trade balance has deteriorated and the stock market that resulting in an accelerated decline in the leading composite index.

B) The overall Commercial Service Industry Business Cycle Composite index analysis and prediction was changed in the first quarter of 2020 when the global pandemic spreads and affected. The higher growth of the Q4 economy in 2019 is now short-lived. The change of the standardized composite index is expressed as the standard deviation of the unit change, from the previous (2018) peak positive 0.28 standard deviation (σ) to the negative 0.56 standard deviation (σ) in March this year. It’s predicted that this coming October will be a negative 1.14 standard deviations, which is equivalent to falling into the "recession interval " of traditional experience.

Schedule

 Business Cycle Coincident Composite Index for Taiwan Service Sector

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Business Cycle Composite Index for Taiwan Service Sector

Source: Commerce Development Research Institute