Taiwan: Manufacturing PMI falls to over seven-year low in June
July 1, 2019
Operating conditions in the Taiwanese manufacturing sector continued to deteriorate in June for the ninth month running, and did so at an accelerated rate that was the steepest recorded since November 2011. The manufacturing Purchasing Managers’ Index (PMI), reported by Nikkei and IHS Markit, fell from 48.4 in May to just 45.5 in June, lying further below the 50-point threshold that separates expansion from contraction.
The sharper deterioration in June was largely due to a marked worsening of output decline in the month—with the corresponding index falling to its lowest level since 2012—as well as a corresponding slump in new orders, which fell to a near four-year low. Feeble export demand was in good part responsible for the sector’s woes, and respondents often cited lower sales to key markets—notably China, Europe and the U.S.—as the main driver behind diminished overall demand.
Given the lower demand conditions, firms managed to clear out backlogs of work at the fastest pace since November 2011, and also reduced their staffing level, albeit only slightly. Purchasing activity in turn further contracted, to an over seven-and-a-half year low, while suppliers’ delivery times improved somewhat. Moreover, inventories of both inputs and finished products declined at a faster pace than in May. On the price front, muted demand conditions caused input prices to decline more steeply, and pressured manufacturers to also slash their selling prices in a bid to attract more business.
Lastly, against this dim backdrop, business confidence slumped further, and firms were the most pessimistic since September 2015 regarding the production outlook over the next 12 months. The U.S.-China trade dispute remained at the forefront of manufacturers’ concerns, as did the projected global economic slowdown.
Commenting on this month’s reading, Annabel Fiddes, principal economist at IHS Markit, noted:
"Other indicators add to worries that the downturn will stretch into the second half of the year. Business confidence fell to its most negative since September 2015 as many believe the US-China trade dispute and subdued global demand will weigh on future output. […] Unless we see a marked improvement in global demand conditions, particularly across key export markets such as the US and China, it seems unlikely that the sector will recover soon."
Author: Joffrey Simonet, Economist