Authors: Tain-Tsair Hsu（許添財）, Shin-Hsien Chen（陳世憲）

【Abstract】

I. Current Trends and Outlook of the Commercial Service Industry

1. The Commerce Development Research Institute (CDRI) Commercial Service Industry Business Cycle Indicator System analysis shows that the Coincidental Cyclical Composite Index for Service Industry (CCCIS) has declined for 22 consecutive months as of January 2026. The index fell from a peak of 0.6562 to -0.2052 Standard Deviations, with a projected further decrease to -0.2971 by July 2026.

While the downward pace of the Cyclical Composite Index is slower than that of three months ago, sub-indicator analysis reveals an uneven recovery. The trend of “the strong getting stronger and the weak getting weaker” is becoming more pronounced.

Among the five sub-indicators, two are rising while three continue to decline. The Real GDP Index of Wholesale and Retail Industry remains the sole leader with a strong upward trend at 3.1697 Standard Deviations, while the Real Consumption of Residential Services, Utilities, and Other Fuel Industries showed a slight increase to 0.9292 Standard Deviations. Conversely, the remaining three indicators continue to fall in tandem: the Real GDP of the Accommodation and Catering Industry stands at -1.1320, the Real GDP of Real Estate and Residential Service Industry at -2.6792, and The Number of Employees in the Service Industry at -1.3134 Standard Deviations.

II. Key points regarding the current changes in Business Forecast for Taiwan’s Commercial Service Industry

1. The uneven recovery persists. While the decline in the overall Cyclical Composite Index has slowed, structural factors continue to worsen the latent causes of localized recession. The risk of a recession triggered by industrial structural imbalance should not be overlooked.

a. Although the overall economic growth rate increased every quarter last year, the productivity gap between the Service Sector and the Industry Sector has concurrently widened.

b. Within the Commercial Service Industry, a structural competitiveness gap has emerged, characterized by the phenomenon of “the strong getting stronger, and the weak getting weaker.”

2. International environmental risks and uncertainties have risen sharply; Taiwan faces unprecedented shocks and challenges.

a. Whether it is the potential ruling of Trump’s reciprocal tariffs as unconstitutional or the unprecedented scale of military conflict between the U.S., Israel, and Iran, these events will add significant volatility and uncertainty to international trade markets and development.

b. While Taiwan’s economic development benefits from an extreme competitive advantage in the AI industry, this has also created high risks regarding industrial concentration and dependence on external markets (including energy). Consequently, the potential impact and obstruction from international market turmoil and global order disruptions will be relatively greater.

III. Policy Implications of the Current Business Cycle Trend Changes:

1. The core factors of the aforementioned “structural imbalance” recession risks primarily stem from the supply side.

a. The fact that productivity in the Service Sector is increasingly lower than that of the Industry and Manufacturing Sector is rooted in long-term differences in the development environment and opportunities.

b. The widening prosperity gap between sectors within the Commercial Service Industry is also fundamentally a supply-side issue. As consumer purchasing power and behavior—or the market itself—change rapidly, only industries and operators with sufficient capacity and resources for R&D and reform can adapt effectively. In particular, as network technology and digital transformation become prerequisites for innovation, and as consumers prioritize transaction costs and efficiency, large-scale operations and IoT integration are essential to achieving effective supply-side reform.

2. In short, the outward investment and trade of SMEs, as well as the operations of domestic small and micro-businesses, must center on digital transformation-driven network technology and business model innovation. Given their limitations in scale and strength, government assistance in establishing “Public Clouds” and “Shared Platforms” serves as a classic example of supply-side reform.

1. Comprehensive analysis and prediction

The latest statistics from CDRI show that the Coincidental Cyclical Composite Index for Service Industry (CCCIS) reached -0.2052 Standard Deviations in January 2026 and is forecasted to continue falling to -0.2971 Standard Deviations by July.

The CCCIS for January this year indicates a persistent uneven recovery across sectors; furthermore, the phenomenon of “the strong getting stronger, and the weak getting weaker” has intensified. This reveals that cyclical movements in the Commercial Service Industry are currently facing an unprecedented high risk of “industrial structural imbalance” recession. Addressing this may require more than general “macroeconomic” anti-recession measures. Instead, it necessitates a Tailor Policy for industrial and commercial transformation and upgrading, specifically targeting the divergent recessionary characteristics of different sectors. (Refer to Figure 1 and the appendix below)

Figure 1. “Tendencies and Forecasts of the Coincidental Cyclical Composite Index for the Service Industry”

Source: Business Cycle Forecasting Team, CDRI

The Directorate-General of Budget, Accounting and Statistics reported that the annual economic growth rates for 2025 were: Q1 5.54%, Q2 7.71%, Q3 8.42%, and Q4 12.65%.

Analyzing quarterly growth rates and their contribution by expenditure sector reveals that while the overall economic growth rate increased quarterly during the first three quarters, Private Consumption was relatively weakened. It was superseded by Private Investment, and particularly by Net Trade in Service Revenue and Expenditure. In Q4, the contribution of net exports surged remarkably, reaching 11.9 percentage points. However, a new turning point emerged as the contribution of Private Consumption reached 1.59 percentage points, surpassing the 0.03 percentage points of Private Investment. This suggests that Private Investment may have “stalled,” requiring further attention. (Refer to Table 1 below)

From an industry perspective, observing the growth rates and contributions of the Industry Sector and Service Sector across the four quarters of 2025, the Industry Sector consistently maintained a significant relative advantage. This clearly highlights the relative decline in productivity within the Service Sector. (Refer to Table 2 below)

The growth rates and contribution comparisons revealed by the government’s Real GDP data confirm the “structural recession” paradox presented by the current business cycle indicator system: the Commercial Service Industry is slowing down and declining against the backdrop of high overall economic growth.

Table 1. Economic Growth Rate and Contribution by Expenditure Sector, Q1-Q3 2025

                                                                                                                                                   Unit: %; percentage points

Source: Directorate-General of Budget, Accounting and Statistics, Executive Yuan, and the Business Cycle Forecasting Team of CDRI

Table 2. Economic Growth Rate and Contribution by Industry Sector, Q1-Q3 2025

                                                                                                                                                Unit: %; percentage points

Source: Directorate-General of Budget, Accounting and Statistics, Executive Yuan, and the Business Cycle Forecasting Team of CDRI

2. Service industry business cycle outlook

【Regarding the indicator system】

The business cycle Composite Index system on the Time Series Analysis. We analyze the relevant economic indicators in the time series and select indicators based on their significance to the business cycle and stability of their cyclicality.  They are then classified into leading indicators, coincident indicators, and lagged indicators through the use of statistical analysis and verification.

The cyclical trend of the Composite Index of coincident indicators is shown to be highly correlated with the cyclical trend of the GDP, and the forecast value of the Composite Index of the coincident indicators, estimated by the Leading Indicator Composite Index, could be used to forecast the moving trends of the GDP.

The cyclical trend of economic indicators fluctuates around the long-term trend. The long-term trend value is normalized to 100; cyclical trend values greater than 100 indicate a recovery or prosperity stage while values below 100 indicate a recession or depression stage.

The standardized changes of the indicators’ cyclical trend values (in Standard Deviation units) are added up to become a Composite Index, and it fluctuates around the long-term trend value with a Standard Deviation of zero.

The system’s Leading and Coincident Composite Index curves are shown in Figure 2 below:

The Leading Cyclical Composite Index for Service Industry (LCCIS) reached its trough in June 2023, with the standardized Cyclical Composite Index at -0.6861 Standard Deviations. It subsequently followed a continuous upward trajectory, surpassing the long-term trend value (0) in July 2024 and reaching 0.2883 Standard Deviations in January 2026.

Among the seven sub-indicators, four continued to decline while three rose. Notably, two sub-indicators experienced a trend reversal: Private Real Fixed Capital Formation shifted from an upward to a downward trend, while Real GDP of Finance and Insurance Sector shifted from a downward to an upward trend. Consequently, the overall Cyclical Composite Index returned to an upward trajectory.

Regarding the specific movements of the seven sub-indicators, those exhibiting a downward trend include Real GDP of Transportation and Storage Industry (-1.1910 Standard Deviations), Stock Price Index of the Commercial Service Industry (-1.062 Standard Deviations), the previously shifted Net Entry Rate of Employees in the Commercial Service Industry (-0.0332 Standard Deviations), and the newly shifted Private Real Fixed Capital Formation (0.3758 Standard Deviations). Conversely, the three sub-indicators on an upward trend are Net Trade in Service Revenue and Expenditure (3.3612 Standard Deviations), Number of the Initial Acceptance of Unemployment Benefits (inverted) (0.1301 Standard Deviations), and the newly shifted Real GDP of Finance and Insurance Sector (0.3818 Standard Deviations).

It is noteworthy that while the Real GDP of Finance and Insurance Sector shifted from a downward to an upward trend, Private Investment shifted from an upward to a downward trend. This may reflect the severe challenges and increased uncertainties hindering the investment momentum of private enterprises, a situation that demands serious attention.

The CCCIS has been declining steadily since its peak of 0.6562 Standard Deviations in March 2024. During this period, it broke through the long-term trend value (0) in April 2025, turning from positive to negative, and reached -0.2052 in January 2026, representing a significant drop. Based on this trend, it is predicted to continue declining to -0.2971 Standard Deviations by July of this year, suggesting that downward recession risks are steadily increasing.

A comparison of individual sub-indicators reveals an uneven recovery with widening divergence, though the overall trend remains downward. The Real GDP Index of Wholesale and Retail Industry remains the sole outlier of strength, while Real Consumption of Residential Services, Utilities, and Other Fuel Industries shows a slight, continued increase. The remaining three sub-indicators are declining in tandem, exhibiting the inertia of “the strong getting stronger, and the weak getting weaker.” This indicates that amidst the divergent recovery of the Commercial Service Industry, the risk of a “structural” recession is rising (Refer to Figure 1 and the attached table).

Among the individual sub-indicators, those in a continuous downward trend include the Accommodation and Catering Industry, Real Estate and Residential Service Industry, and The Number of Employees in the Service Industry, with their cyclical movements recorded at -1.1320, -2.6792, and -1.3134 Standard Deviations, respectively. Conversely, Real Consumption of Residential Services, Utilities, and Other Fuel Industries saw a slight increase, while the strongest upward performer is the Wholesale and Retail Industry, with a standardized cyclical trend value of 3.1697 Standard Deviations.

Figure 2. Leading and Coincidental Cyclical Composite Index for the Service Industry

Source: Business Cycle Forecasting Team, CDRI

A. Leading indicator series (seven sub-indicators)

a. The business cycle trend for the Real GDP of Transportation and Storage Industry has been on a continuous decline for 27 consecutive months as of January this year (2026), with no sign of slowing down.

The standardized business cycle trend value has dropped to -1.1910 Standard Deviations. The actual annual growth rate also continues to decelerate; over the most recent six quarters, it has fluctuated between 0% and 4.5%. This stands in stark contrast to the five quarters from Q2 2023 to Q2 2024, during which the rate gradually declined from 44.3% to 6.7%. The cyclical movements exhibit severe stagnation and loss of momentum, making it imperative to implement a Tailor Policy to counteract the recession.

The long-term trend value for this indicator has undergone a continuous decline for 27 months, reaching 96.35 in January 2026. It has remained below the long-term trend value (100) for 12 consecutive months, with the downward momentum showing no significant signs of slowing.

Figure 3. The annual growth rate of Transportation and Storage GDP and business cycle trend, 2020Q1~2025Q4

Source: Business Cycle Forecasting Team, CDRI and Directorate General of Budget, Accounting and Statistics, Executive Yuan

b. The long-term trend value for Private Real Fixed Capital Formation peaked in June 2025 and declined to 101.18 in January 2026. The actual annual growth rate also plummeted from 21.1% in Q1 2025 to zero growth in Q4. This shift in Private Investment from an upward to a downward trend, coupled with its accelerating decline, demands serious attention.

The cyclical trend value for this indicator reached its trough at 94.91 in November 2023 and subsequently followed a continuous upward trajectory. After 19 months, it peaked in June 2025 before turning downward to reach 101.18 in January 2026. The standardized Cyclical Composite Index also fell to 0.3758 Standard Deviations.

Furthermore, based on actual values, the annual growth rate (YoY) turned positive in Q2 2024, ending five consecutive quarters of negative growth. It then rose quarterly to a peak of 21.1% in Q1 2025. However, the trend reversed, with growth rates slowing down to 12.5% and 10.6% in Q2 and Q3, respectively, before reaching zero growth in Q4 of last year.

Figure 4. Annual growth rate and cyclical trend of Private Real Fixed Capital formation, 2020Q1~2025Q4

Source: Business Cycle Forecasting Team, CDRI and Directorate General of Budget, Accounting and Statistics, Executive Yuan

c. The Net Trade in Service Revenue and Expenditure saw a historically rare surplus during the pandemic, but it returned to the “old normal” of a deficit starting in Q4 2022. An improvement in the service trade deficit signifies a recovery in the service industry’s climate. The long-term trend value reached its trough in October 2023 and has since followed a continuous upward trajectory. The actual annual growth rate also “improved” from -380.3% in Q4 2023, fluctuating between -82.7% and -2.2% from Q1 2024 to Q4 2025.

The cyclical trend value climbed steadily from its trough of 82.90 in October 2023 to 121.01 in January 2026. Regarding actual values, the annual growth rate was -380.3% (representing the maximum deficit) in Q4 2023 and reached -35.9% in Q4 2025.

Figure 5. Annual growth rate and cyclical trend of net trade in Services Revenue and Expenditure, 2020Q1~2025Q4

Source: Business Cycle Forecasting Team, CDRI and Directorate General of Budget, Accounting and Statistics, Executive Yuan

d. The Number of the Initial Acceptance of Unemployment Benefits (inverted) has been on a continuous upward trajectory since February 2024. This signals increasing pressure on overall labor demand and symbolizes an improving economic climate, or a “labor shortage” relative to labor supply. However, observing the magnitude of the indicator’s movements reveals that the growth has gradually narrowed since H2 2025, with clear signs of stagnation.

While the unemployment rate is a Lagging Indicator of the business cycle, the number of initial unemployment benefit claims leads the unemployment rate. Conversely, a Lagging Indicator can lead a Leading Indicator; thus, the inversion of unemployment benefit claims can be treated as a Leading Indicator. Since employment is a Coincident Indicator, the inverted Number of the Initial Acceptance of Unemployment Benefits can lead employment trends.

The cyclical trend value of this indicator peaked in May 2022 at 110.08, reflecting a rapid recovery in employment demand. It subsequently turned downward, falling below the long-term trend value (100) by May 2023. It reached its trough in January 2024 at 95.53, signaling the end of the downward trend in labor demand. By January 2026, the value rose to 100.63, indicating that while labor demand continues to increase, the rate of growth has significantly diminished and shows signs of stagnation. The standardized Cyclical Composite Index stands at only 0.1301 Standard Deviations.

Figure 6. Number of the initial acceptance of unemployment benefits (inverted) and the annual growth rate and cyclical trend January 2020 to December 2025

Source: Business Cycle Forecasting Team, CDRI and Directorate General of Budget, Accounting and Statistics, Executive Yuan

e. The shift from an upward to a downward trend in the cyclical movement of the Net Entry Rate of Employees in the Commercial Service Industry marks a significant turning point in the service sector’s labor market. The standardized Cyclical Composite Index reached -0.0332 Standard Deviations in January 2026, indicating that employment volume in the Commercial Service Industry has begun to transition from growth to decline.

The cyclical trend value for this indicator reached its trough in December 2022 and climbed steadily to a peak of 100.80 in July 2024. Subsequently, it turned downward with an accelerating rate of decline; by January 2026, the cyclical trend value fell to 99.89, dropping below the long-term trend value (100). The standardized Cyclical Composite Index has now decreased to -0.0332 Standard Deviations.

Figure 7. Annual changes and cyclical trends in the net entry rate of Employees in the Commercial Service Industry, January 2020 to December 2025

Source: Business Cycle Forecasting Team, CDRI and Directorate General of Budget, Accounting and Statistics, Executive Yuan

f. The cyclical movement of the Stock Price Index of the Commercial Service Industry peaked in October 2024 and has since declined for 15 consecutive months through January 2026. The rate of decline continues to accelerate slightly, with the long-term trend value reaching 94.9 and the standardized Cyclical Composite Index falling to -1.0062 Standard Deviations. This indicator clearly signals that the Commercial Service Industry is continuing its trajectory toward recession.

Furthermore, observing the actual year-on-year (YoY) growth rate of the stock price index, growth was maintained from May to December 2024, peaking at 15.1% in October. However, growth momentum subsequently slowed, turning negative in 2025 and deteriorating further. By October last year, the annual growth rate plummeted to -20.3%, before the rate of decline moderated slightly to -16.12% in January 2026. This evidence confirms that the cyclical trend remains firmly in a downward phase.

Figure 8. The annual growth rate and circular trend of the Stock Price Index of the commercial service industry, January 2020 to January 2026

Source: Business Cycle Forecasting Team, CDRI and Directorate General of Budget, Accounting and Statistics, Executive Yuan

g. The actual annual growth rate of the Real GDP of Finance and Insurance Sector returned to growth in Q2 2023 and quickly reached a peak of 19.2% in Q1 2024. Growth subsequently decelerated each quarter, falling into single digits in 2025, with the Q2 growth rate dropping to only 1.4%, before slightly recovering to 6% and 8.8% in Q3 and Q4, respectively. Notably, the long-term trend value reached its trough in August last year and has since seen a slight recovery to 100.55 in January 2026. The standardized Cyclical Composite Index also rose to 0.3818 Standard Deviations, contributing positively to the momentum of the LCCIS.

Figure 9. Annual growth rate and cyclical trend of real GDP of Finance and Insurance Sector, 2020Q1~2025Q4

Source: Business Cycle Forecasting Team, CDRI and Directorate General of Budget, Accounting and Statistics, Executive Yuan

B. Coincident indicator series (five sub-indicators)

a. The Real GDP Index of Wholesale and Retail Industry continues to stand out as a sole outlier of strength. Both its cyclical trend and actual values are rising steadily, indicating robust recovery momentum. The standardized long-term trend value has increased further to 3.1697 Standard Deviations.

The cyclical trend value for this indicator continues to recover, reaching 102.95 in January 2026. This demonstrates a stable and continuous recovery with undiminished upward speed. Furthermore, the actual annual growth rate climbed quarterly throughout 2025, surging to a high of 10.8% in Q4.

Figure 10. Annual growth rate and cyclical trend of real GDP Index of Wholesale and Retail, 2020Q1~2025Q4

Source: Business Cycle Forecasting Team, CDRI and Directorate General of Budget, Accounting and Statistics, Executive Yuan

b. The cyclical trend of Real GDP of the Accommodation and Catering Industry has been declining for 30 consecutive months as of January 2026, indicating a persistent downward movement, although the rate of decline has slowed slightly. After the actual growth rate turned negative in Q2 2024, it has experienced minor fluctuations; despite a slight increase of 1.9% in Q4 2025, it failed to reverse the downward cyclical trajectory. The standardized Cyclical Composite Index continued to drop to -1.1320 Standard Deviations.

The long-term trend value for this indicator fell further to 97.33 in January 2026, marking the 15th consecutive month below the long-term trend value (100). This suggests that the business cycle remains in a downward phase with no genuine signals of a rebound.

Furthermore, the actual annual growth rate has fluctuated between -4.5% and 1.9% since recording a negative growth of 2.2% in Q2 2024, failing to establish a stable recovery trend.

Figure 11. The annual growth rate and circular trend of real GDP in the Accommodation and Catering Industry, 2020Q1~2025Q4

Source: Business Cycle Forecasting Team, CDRI and Directorate General of Budget, Accounting and Statistics, Executive Yuan

c. The cyclical movement of the Real Estate and Residential Service Industry GDP peaked in June 2024 and has since declined for 19 consecutive months through January 2026, with no signs of the deceleration slowing down. During the same period, the actual annual growth rate fell from a peak of 6.8% in Q1 2024 and has decreased every quarter at an accelerating pace, reaching -1.6% by Q4 2025. The standardized Cyclical Composite Index further declined to -2.6792 Standard Deviations, signaling a clear recession in the business cycle.

The long-term trend value for this indicator, following a period of minor fluctuations, dropped to 98.29 in January 2026, with the rate of decline showing no signs of abating. At -2.6792 Standard Deviations, the standardized cyclical movement represents the most severe downturn in years, indicating that the sector has explicitly entered a recessionary phase.

As shown in the quarterly bar chart figures below, the actual annual growth rate fell from its 6.8% peak in Q1 2024 to -1.6% in Q4 2025, demonstrating a severe lack of momentum in cyclical movements.

Figure 12. Annual GDP growth rate and cyclical tendency of Real Estate and Residential Service Industry, 2020Q1~2025Q4

Source: Business Cycle Forecasting Team, CDRI and Directorate General of Budget, Accounting and Statistics, Executive Yuan

d. The cyclical fluctuations of Real Consumption of Residential Services, Utilities, and Other Fuel Industries are typically stable over the long term. However, the cyclical trend value began to recover after reaching its trough in March 2023, with growth accelerating in the second half of 2025. By January 2026, the cyclical trend value reached 100.14, slightly exceeding past levels, while the standardized Cyclical Composite Index climbed to 0.9292 Standard Deviations. The most recent peak reached 2.64% in Q2 2024, after which it fluctuated downward to below 2%, only recovering to 2.26% in Q4 2025.

While this indicator generally shows minor long-term fluctuations and has never recorded negative growth in actual terms, the variations in growth rates still reveal a distinct “growth cycle.” The cyclical trend value reached an all-time high of 100.14 in January 2026, with a standardized value of +0.9292, both representing unprecedented peaks.

Regarding the actual annual growth rate, every quarter since 2020 has seen growth, albeit within a narrow range. Rates have fluctuated between a high of 3.08% (Q2 2020) and a low of 0.86% (Q2 2022). The most recent peak was 2.64% (Q2 2024), after which it dipped below 2% before recovering to 2.26% in Q4 2025.

Figure 13. Real Consumption of Residential Services, Utilities, and Other Fuel Industries, 2020Q1~2025Q4

Source: Business Cycle Forecasting Team, CDRI and Directorate General of Budget, Accounting and Statistics, Executive Yuan

e. The cyclical trend of The Number of Employees in the Service Industry followed a continuous upward trajectory from June 2022 until reaching its peak in February 2024. Subsequently, it underwent a trend reversal, declining for 23 consecutive months to reach a cyclical trend value of 99.75 by January 2026. While the pace of decline is not exceptionally rapid, there are currently no signs of improvement. Furthermore, the standardized Cyclical Composite Index has deteriorated to -1.3134 Standard Deviations, a level of severity that surpasses even the Accommodation and Catering Industry at -1.1320, demanding serious attention.

Regarding the actual annual growth rate, the sector has seen continuous growth since December 2022. The growth magnitude initially surged from 0.1% to a peak of 2.52% in September and October 2023, before decelerating to 0.4% by late 2024. Throughout 2025, the rate fluctuated between 0.44% and 0.81%, ending the fourth quarter at 0.74%. This data reflects concerns that employment growth is stagnating during the economic recovery due to intensified "labor shortage" pressures. With the cyclical trend in a continuous downward phase, no clear signs of a reversal have yet emerged.

Figure 14. The growth rate and cyclical tendency of The Number of Employees in the Service Industry, January 2020 to December 2025

Source: Business Cycle Forecasting Team, CDRI and Directorate General of Budget, Accounting and Statistics, Executive Yuan

aC. Lagged indicator series

The lagged indicator includes Real Consumption of Tobacco and Alcohol, Real Consumption of Clothing, Footwear, and Apparel, Real Consumption of Furniture, Equipment, and Housekeeping, and the Number of Initial Recognition and Acceptance of Unemployment Benefits. The Lagged Index can be used as a reference for observing whether a business cycle is over. This article omits relevant analysis.

Appendix

Business Cycle Coincident Composite Index for Taiwan Service Sector