Taiwan Output Contracts at Steepest Pace in the Year-to-date

September 04, 2012 /

Weaker national and international demand has led to Taiwan’s third successive fall in output at the country’s manufacturing firms.

The HSBC Taiwan Purchasing Managers’ Index (PMI) posted 46.1 in August. The latest reading was down from 47.5 in July and pointed to a further deterioration in the health of the Taiwanese manufacturing sector.

The pace of the latest contraction was steep and the fastest since December 2011. New orders and new export business both declined, extending the current sequence of contraction to three months. According to panellists, the slowdown in the wider economy resulted in weaker demand for manufactured goods.

The pace of the latest contraction was steep and the fastest since December 2011. New orders and new export business both declined, extending the current sequence of contraction to three months. According to panellists, the slowdown in the wider economy resulted in weaker demand for manufactured goods.

In line with falling production, backlogs of work decreased for the third month running. Furthermore, the
pace of contraction was the sharpest in 2012 so far. Input prices at Taiwanese manufacturing firms fell for
the fourth consecutive month in August. Although marked, the pace of decrease was slower than that recorded in July. Panellists reported that input costs fell in line with decreasing metal and raw material prices.

Moreover, it was mentioned that weaker demand also contributed to the latest decline. In line with input costs, charges fell at a solid rate as manufacturers attempted to maintain competitiveness and attract new business, it was reported.

Staffing levels at firms in Taiwan were reduced in August amid reports of falling output. With exactly 96%
of respondents signalling no change, the pace of contraction was slight and slower than that seen in July.

Purchasing activity at manufacturers in Taiwan fell during August. The rate of contraction was sharp and
the fastest since December 2011. Anecdotal evidence suggested that input buying was reduced in line with
weaker demand from domestic and international clients.

Meanwhile, vendor performance improved for the fifth successive month. With the vast majority of respondents reporting no change, the rate of shortening was only slight and broadly in line with that seen in July.

Stocks of purchases in the Taiwanese manufacturing sector fell in August. That said, the rate of depletion was modest and slower than in July. Post-production inventories were also depleted as firms lowered stocks
in line with weaker demand.

Donna Kwok, Economist at HSBC in Asia said: “Manufacturing headcount reductions remain modest so far, but conditions in this important job market are at their weakest since mid-2009. This leaves domestic demand more vulnerable than during the last period of sustained below-50 readings in 2011. With the pace and scale of China’s recovery more modest than previously thought, we expect Taipei policy makers to beef up the island’s economic defences more meaningfully soon.”

 

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