Taiwan: Manufacturing PMI rebounds from seven-year low in July but remains in contraction
August 1, 2019
The manufacturing Purchasing Managers’ Index (PMI), reported by Nikkei and IHS Markit, rose to 48.1 in July from 45.5 in June, but remained below the 50-point threshold that separates expansion from contraction. Operating conditions in the Taiwanese manufacturing sector therefore deteriorated in July for the tenth month running.
The print was largely led by a softer decline in underlying demand, with output falling at a more modest pace in the month while new orders, backlogs of work and purchasing activity also declined at a slower rate than in June. Nevertheless, new orders still fell quite sizably, due notably to feeble export demand from key markets—primarily China and the ASEAN region. On the plus side, firms increased their staffing levels for the first time since March.
On the supply front, vendor delivery performance improved marginally in the month, while stocks of input fell at a solid pace again—consistent with lower purchasing activity. Inventories of finished goods also declined at the sharpest rate in just over four years. Lastly, input costs fell the most since February 2016, and vendors largely passed on the cost savings to consumers by lowering selling prices in a bid to stimulate demand.
Lastly, business confidence remained pessimistic but improved sizably from June, though concerns over the global growth slowdown and the impact of the U.S.-China trade war continued to loom large. Moreover, the situation dramatically worsened on 1 August when President Trump decided to apply 10% tariffs on USD 300 billion of untaxed Chinese imports. This signaled that the trade war is quickly turning into a long-term attrition battle, with only dim prospects for an improvement in the near future, and will likely weigh on business sentiment in the months ahead. The impact of this decision is all the more consequent as the new batch of tariffs would also apply to tech products—Taiwan’s flagship export—whose supply chains are heavily integrated between Taiwan and mainland China.
Author: Joffrey Simonet, Economist