Taiwan: PMI inches down in January, signaling ongoing weakness at the outset of the year
February 1, 2019
Operating conditions in the Taiwanese manufacturing sector continued to deteriorate in January, confirming that the economy likely remained on a weak footing at the start of the year after losing momentum in Q4. The manufacturing Purchasing Managers’ Index (PMI), reported by Nikkei and IHS Markit, inched down from 47.7 points in December to 47.5 points in January, its lowest level since September 2015. The index thus remained below the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has been since October.
As in December, the worsening operating conditions in January were due primarily to declining output and new orders, which fell at similar rates as in the previous month. Survey respondents cited notably weaker external demand as a main factor for declining new business, and indeed new export orders continued to fall in the month, at a slightly faster rate than in December.
As a result of lower demand, firms managed to reduce their backlogs of work for the third consecutive month, but also continued to shed jobs as voluntary leavers were increasingly not replaced. Furthermore, purchasing activity also declined in January, while stocks of inputs as well as finished products both fell. Consequently, supply chains appeared to be less stretched in the month, with supplier delivery times increasing at the softest pace in over two-and-a-half years.
Meanwhile, on the price front, firms reduced their selling prices for the second month in a row in a bid to shore up demand; nevertheless, a modest fall in input costs helped manufacturers protect their margins despite intensifying price competition.
Overall, a majority of Taiwanese manufacturers anticipated output to remain stable in the year ahead, as softer global growth and concerns due to the U.S.-China trade war significantly dampen short-term prospects.
Author: Joffrey Simonet, Economist