Taiwan PMI May 2019

Taiwan

Taiwan: Manufacturing PMI contracts for eighth consecutive month in May

June 3, 2019

Operating conditions in the Taiwanese manufacturing sector continued to deteriorate in May for the eighth month running, though at a marginally slower pace than in April. The manufacturing Purchasing Managers’ Index (PMI), reported by Nikkei and IHS Markit, rose from 48.2 in April to 48.4 in May, remaining below the 50-point threshold that separates expansion from contraction.

The overall picture for the sector was little changed in the month, though demand indicators showed a small improvement. New orders, both from the domestic and export markets, contracted somewhat more softly, while the decline in output also eased to a marginal level, and backlogs of work rose ever so slightly as they had in April. Employment levels meanwhile fell for the second consecutive month as firms chose not to replace voluntary leavers.

On the supply side, purchasing activity continued to decline, while both firms’ input and finished goods inventories fell at a quicker rate. Amid this subdued level of activity, input costs declined at the fastest pace in over three years, although the fall was still modest. In turn, output charges fell at a robust pace as firms used price discounting to attempt to stimulate demand.

Lastly, manufacturers became pessimistic regarding the outlook for the year ahead in May, with many respondents expressing concerns over the global growth slowdown, and especially over the worsening of U.S.-China trade tensions. The Taiwanese manufacturing sector, and particularly its flagship electronics industry, is extremely vulnerable to a further escalation of tariff action between the two countries. Indeed, new tariffs proposed—but not yet applied—by the Trump administration on USD 300 billion of currently untaxed Chinese imports would cover virtually all tech products coming from China, for which Taiwan is a critical segment of the supply chain. Moreover, the escalation of rhetoric from both sides in recent weeks suggests heightened risks of the tariffs being applied in coming months, unless a breakthrough is achieved at the next G20 summit on 28-29 June.

FocusEconomics Consensus Forecast panelists expect fixed investment to expand 3.3% this year, which is up 0.1 percentage points from last month’s forecast. For 2020, participants expect fixed investment to increase 2.6%.


Author:, Economist

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Taiwan PMI May 2019

Note: Nikkei Taiwan Purchasing Managers’ Index (PMI). A reading above 50 indicates an expansion in business activity while a value below 50 points to a contraction.
Source: Nikkei and IHS Markit.


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