Growth of Taiwanese manufacturing sector weakest in 16 months

Markit Research

The HSBC Taiwan Manufacturing headline Purchasing Managers’ Index posted 50.5 in July, falling from June’s 53.8. The latest reading signaled a marginal improvement in business conditions within the Taiwanese manufacturing sector, and was the 16th in successive months. However, the rate of growth was the weakest in that period.

Incoming new business received by manufacturers in Taiwan fell during July for the first time since March 2009. Panelists attributed the contraction in new orders to a general decrease in demand, particularly from overseas customers. This was compounded by strong competition for new business. New export orders also fell during the month, with manufacturers particularly noting a drop in new work received from Europe.

Output fell during July, reflective of the decline in overall new orders, although the rate of contraction was only marginal. Nonetheless, backlogs of work at manufacturers in Taiwan decreased, ending a 15-month period of accumulation. Alongside the reduction in new orders, some panelists commented that increased production capacity had driven the fall in outstanding business.

July data also signaled a decline in finished goods stocks, with many manufacturers reporting that they were deliberately aiming to reduce inventories.

Despite the falls in output and new orders, employment within the Taiwanese manufacturing sector increased during July. Moreover, the rate at which staffing levels have growth over the last three months has been broadly flat at a solid level. Panelists commented that they were aiming to expand production capacity.

Purchasing activity increased only slightly during July. Suppliers’ delivery times worsened again, predominately reflective of shortages of raw materials at vendors.

Input costs increased only negligibly during July, as raw material price rises eased. The rate of input cost inflation has fallen sharply over the last two months, although shortages of certain inputs have maintained overall price increases. Reflective of lower cost rises and strong competition for new business, output prices fell for a second successive month.

Commenting on the Taiwan Manufacturing PMI survey, Frederic Neumann, co-head of Asian economic research at HSBC, said: “Easing demand elsewhere in the world, is weighing on growth in Taiwan. Slowing new export orders, and a dip in output growth at the start of the second quarter, point to a more challenging second half for the island's economy. However, this is a mere slowdown, and not the start of a double dip: employment growth is still robust and inventories lean, suggesting that local consumption will remain supportive and a full output crunch is unlikely. Easing price pressures, too, suggests that policy-makers can afford to remain accommodative for the time being.”

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