Taiwan: Manufacturing sector remains in contraction in March despite PMI rebound
April 1, 2019
Operating conditions in the Taiwanese manufacturing sector continued to deteriorate in March, but at a much softer pace than in previous months. The manufacturing Purchasing Managers’ Index (PMI), reported by Nikkei and IHS Markit, rose from 46.3 in February—a three-and--half-year low—to 49.0 in March, nevertheless remaining below the 50-point threshold that separates expansion from contraction in the manufacturing sector for the sixth month running.
The softer contraction in the sector was largely due to less feeble demand in the month, with output, total new orders and export sales all declining at a slower rate than in February. Survey respondents nonetheless continued to report that export demand conditions remained particularly subdued, including in Taiwan’s main export markets—mainland China, Hong Kong, and the ASEAN region. Due to lower new orders, manufacturers again managed to reduce their backlogs of work, albeit marginally. On the flipside, companies slightly increased their staffing levels for the first time in four months.
Meanwhile, purchasing activity followed the dynamics observed on the production side, and declined at the softest rate in six months, while inventories of both input and finished goods only fell marginally in the month. Moreover, supplier delivery times improved for the first time since 2016 as supply chain pressures continued to abate. Meanwhile, input costs shot up in March due to higher raw material costs, but companies nonetheless continued to lower their selling prices in a bid to attract more demand.
Ending on a positive note, manufacturers’ sentiment regarding the production outlook in the year ahead turned optimistic—albeit marginally—after several months of a downbeat assessment. Nevertheless, short-term prospects remain challenging due mainly to a deteriorating external environment. As Annabel Fides, principal economist at IHS Markit, noted, “lingering concerns over the US-China trade dispute, signs of a slowing global economy and sluggish demand for consumer electronics could further dampen growth prospects going forward.”
Author: Joffrey Simonet, Economist