As the epidemic draws to a close, the world is looking forward to a rebound. In the fourth quarter of 2021, the World Monetary Fund (IMF) forecast that the global economy would grow at 4.9% in 2022. But in April it lowered the growth to 3.6% from 4.4% forecast in early 2022.
We have to pay attention to the exchange rate, interest rate and inflation rate. From the industrial perspective, the World Economic Forum (WEF) has summarized five future risks that the world must face: climate, technology, geopolitics, economic development, and social governance. These economic data and industry trend observations are used as reference for us to form the basic guidelines for our business strategies.
Taiwan's industry has its own uniqueness. In different situations, we must follow the general economic and industrial trends, and examine them independently in order to grasp the significance of the five risks.
In most developed countries, the inflation rate should exceed 5% in 2022. In order to control inflation, raising interest rates is the basic effort of many countries' finance departments.
Taiwan's electronics and components distribution sectors are both capital-intensive businesses. For a company with US$3 billion in working capital, a 1pp increase in interest rates would increase the cost burden by about US$500 million.
Under the influence of the general environment, the global manufacturing and service purchasing manager indexes have both fallen, with the Japanese yen dropping sharply and the Taiwan currency staying at around NT$29.7 to US$1. As the US interest rate rises, the Chinese yuan, Japanese yen and Taiwan dollar will depreciate, and US dollar funds will flow back to the US. For Asian countries, the Chinese yuan is very important, but the basic financial policies of each country are still in place. Such differences must be considered when trying to understand the overall economy.
On the other hand, Taiwan has generally seen inflation rates below 2%, and government intervention is expected when it exceeds 2%. But the IMF's forecast for global inflation in 2022 has been raised from the original 3.8% to more than 7%, and this is a global phenomenon, and Taiwan can hardly be spared from the impact.
Oil prices are the culprit of inflation, according to the IEA/Reuters report, due to the existence of low levels of crude oil reserves, the price of oil in 2022 will remain at US$ 110-118. Oil fuel accounts for over 40% of the cost of air transportation, and it is difficult for Taiwan's semiconductor industry, which is highly dependent on air cargo, to expect low-cost air transportation.
In March soon after the Russia-Ukraine war started, aviation oil shot up to more than US$160 per barrel, and then came back down to US$130 or so in April. But other European countries threatened to stop using Russian oil and gas by 2030; even if the US and OPEC release more crude oil, the low level of inventory will probably remain for some more time. The chance of oil prices falling is not large. The easing of the inflation pressure will need more government intervention, or the difficult times willl last much longer.
