Commerce Development Research Institute released the Business Cycle Coincident Composite Index for Taiwan Service Sector today (6th Aug).  It is predicted that it will continue to decline slowly in December this year. The coincident cycle composite index started to fell at the beginning of last year. It has passed the peak period of the first half of this year. It is predicted that the slowdown will ease from August to December this year. If effective measurements such as "smart business" and "precise marketing" are implemented, in response to China's malicious suspension on issuing individual travel permits for Taiwan, it is not impossible to stop the decline.

There are both rising and decline in the sub-indicators, indicates that the structure between the industry and different economic sectors is undergoing drastic changes. Among the six sub-indicators of the leading indicator, the ”Private Real Fixed Capital Formation” shows the most positive result. In the five sub-indicators of the coincident index, the “Substantial Real Estate and Residential Services” is still rising, "The Number of Employees in the Service Sector” stops falling. It is not easy to see the recovery of the economy, however, the overall deterioration crisis has been eliminated, in order to avoid recession, in addition to continuing to strengthen the effective demand, the transformation and upgrading of industrial structure, especially the digital transformation of enterprises, we also need more immediate results which can be made by smart business technology strategies and, such as "accurate marketing", "online and offline", AIOT (artificial intelligence Internet of things), LBS (Location-Based Service), etc. The consumption potential of the group with high income has not yet been fully developed, and the tourists from Northeast and Southeast Asia are not staying long enough which limits their consumption.

The recent trend of Coincident indicator cycle index

According to the past indication, upward indicates a rise in the economy (recovery), downward indicates a decline (slow or recession), between zero and 1.5 σ indicates recovery,  above 1.5 σ indicates prosperity; between zero and negative 1.5 σ indicates sluggishness or decline, and less than 1.5 σ indicates depression.

A. Cyclical Leading Composite Index for Service Industries (long-term trend excluded) The actual value peaked in August 2018 and then fell all the way to the end of June. Although the slowdown is easing because of the various trends of the sub-indicators. Since the beginning of last year, the "Private Real Fixed Capital Formation " has been driven by the government’s promotion of "digital countries, smart islands" and new southbound policy etc., and other related infrastructure and public investment. The US-China trade war also sends back Taiwanese businessmen from aboard, resulting in a mitigating effect on the downward trend of other sub-indicators. However, the slowdown in the composite index in the first half of this year is still accelerating, indicating that it will be difficult to see sufficient rebound if stimulus measures not being enhanced continuously.

B. The trends of different sector varies in the sub-indicators of coincident index, the coincident composite index has continued to decline in the first half of 2018, and the rate of growth slowed in the second half of the year, peaking in the first half of this year, forecasting an easing slowdown in the second half of this year. The Deviation of Standardized Composite Indicators is represented as the Units of Standard Deviation . From the peak of 0.28 standard deviation (S) at the beginning of last year, it fell to a negative 0.02 standard deviation (S) in September last year and estimated to drop to negative 0.54 in June this year, continue to fall to a negative 0.77 standard deviation in December this year. It shows that the economy continues to decline. Although the downward speed is slowing down, the stimulus measures should be strengthened.

Business Cycle Coincident Composite Index for Taiwan Service Sector

Business Cycle Composite Index for Taiwan Service Sector

Source： Business Cycle Forecasting Team, CDRI

(Business Cycle Indicator System is designed, instructed and analysed by professor Tain-Tsair Hsu)