Taiwan Output Contracts at Fastest Pace Since January

August 01, 2012 /

Taiwanese firms signalled that demand from US, European and Chinese markets weakened, while domestic demand was also reported to be lower than that seen during June.

The pace of contraction in both total new orders and new export orders was the fastest since December 2011.

This was according to the HSBC Taiwan Purchasing Managers’ Index (PMI), a composite indicator designed to provide a single-figure snap-shot of the health of the manufacturing sector. PMI readings above 50.0 signal
an improvement in business conditions, while readings below 50.0 signal deterioration.

The PMI posted 47.5 in July, down from 49.2 in the previous month and pointing to the second successive deterioration in the health of the manufacturing sector.

Outstanding orders fell for the second successive month in July at manufacturers in Taiwan. Panellists
signalled that the volume of work-in-hand (but not yet completed) fell in line with weaker inflow of new
business. Moreover, average lead times shortened as demand for inputs decreased. However, the rate of
shortening was only slight and the slowest in the current four-month sequence of improvement in vendor

July data signalled a reduction in workforces at manufacturing firms in Taiwan. Although marginal, the
pace of contraction was the fastest in the past 37 months.

Factory gate prices fell substantially in the Taiwanese manufacturing sector during the latest month.

According to respondents, output prices decreased in line with a sharp drop in input prices. Additionally, it was suggested that the current economic slowdown led firms to reduce prices as competition increased.

Input prices fell in July, and at the fastest pace since January 2009. Anecdotal evidence suggested that
copper and petroleum prices dropped. Moreover, firms cited that supply was greater than demand.

Stocks of finished goods declined at Taiwanese manufacturing firms amid reports of falling production.
Although solid, the rate of depletion was the quickest since November 2011.

Meanwhile, pre-production inventories decreased for the first time in six months. Anecdotal evidence
suggested that stocks of purchases were intentionally depleted as the number of orders decreased.

Donna Kwok, Economist at HSBC in Asia said: “Taiwan’s slow-down remains modest compared to the worst of 2008-2009, but clouds are gathering on the horizon. The inventory build-up for a number of key product launches which has underpinned manufacturing activity since Q1 is coming to an end, but the pick up in final demand that’s needed to keep things going is nowhere in sight.

“With hiring activity slowing, domestic demand will unlikely fill the void left by US, European and Chinese consumers. That’s unless Beijing’s recent loosening measures start to feed more rapidly through to Mainland demand, or Taipei delivers more significant policy support soon.”


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