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Business Cycle Forecast for Taiwan’s Commercial Service Industry

Private Consumption Continues to Decline and Needs to Be Revitalized More Need to Rebuild the Innovation Ecosystem of the Business Service Industry

   COVID-19 problems coming up one after another, continue to severely block mobility. that cause numerous countries’ fallen into a "technical recession". Even some experts have warned that the United States will fall into a W-shaped recession. Taiwan is still one of the few countries that continue to grow. The economic growth rate in the first three quarters of this year was 2.28%. Compared with the same period last year, net output increased by 13.47%, followed by government investment by 8.93%, private investment by 3.23%, government consumption by 1.9%, and private consumption by 2.8%. Many inventories are cleared, which shows that the boom in exports has contributed a lot to economic growth.

  At present, the pandemic prevention cannot be relaxed, and the government's rescue and revitalization are also in progress according to the situation. In the third quarter, the acceleration of government, public enterprises, and private investment, and net output increased substantially, but the consumer sector continued to decline. The increase in government consumption alone could not make up for the decline in private consumption. If there is no decline in private consumption. The economic growth rate in the first three quarters of this year will be 3.72% instead of only 2.28%. The downturn in private consumption has directly hit the growth and employment of the service sector.

Commerce Development Research InstituteCDRIreleased the Business Cycle Coincident Composite Index for Taiwan Service Industry today (December 4th) , shows the economic situation still hit by the pandemic that the downward trend continued in October this year. Meanwhile, the Business Cycle Coincident Composite Index also continued to decline. Therefore, the forecast of the composite index of peer indicators continues to decline in the next six months. However, it is predicted that the decline rate of the composite index of the business service industry peer indicators in the first half of next year will be slower than this year due to the sharply slowed down leading indicator composite index of the third quarter.

It has been 26 months since the composite index of leading indicators fell in September 2018 (October 2020), and it has been 17 months since the composite index of peer indicators fell in June 2019. According to this trend, it is difficult to see a significant reversal and rebound in the first half of next year. Although there are great uncertainties, it is still necessary to address the long-term structural problems of the low productivity of the commercial service industry. The lack of international competitiveness, and cooperate with the great opportunity of the all-round "digital transformation" of the digital economy to carry out the commercial service industry technology, business strategy, business model, the legal system, and value international relations.

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)     Cyclical Leading Composite Index for Service Industries(not contain long-term trends) The actual value has stopped rising and falling since September 2018, and has fallen from a peak of positive 0.2745 standard deviations to a negative 0.2149 standard deviation in October 2020.
The reason is that among the sub-indices, the “substantial private fixed capital formation” started to climb in April 2018. It began to exceed the long-term trend value (100) in March 2019, and then the upward trend strengthened, reaching 101.57 in October 2019. However, the trend of high expectations this year changed due to the pandemic, and even stopped rising and then declined. The index dropped below the long-term trend (100) in July and continued to drop to 98.7 in October this year.

b)    The change of the standardized composite index is expressed in the standard deviation of the unit change, from the positive 0.3228 standard deviation (σ) of the peak in May 2019 to negative 0.1065 standard deviation (σ) in March of this year, and now it has fallen to the negative of October. 0.208 standard deviations. If the situation does not reverse, it is predicted that it will continue to fall to a negative 0.2749 standard deviation in April next year, and the trend of slowing economic conditions is difficult to understand.



Business Cycle Coincident Composite Index for Taiwan Service Sector


Deviation of Standardized Cyclical Coincident Composite Index (unit:Benchmark: 0)






Use ARMA Model: (4,0)(0,0) to make predictions based on the leading effect set for half year

























Peer indicator composite index extrapolated value





Peer indicator composite index extrapolated value










SourceBusiness Cycle Forecasting Team, CDRI















Business Cycle Composite Index for Taiwan Service Sector

Source: Commerce Development Research Institute