Taiwan’s manufacturing sector grew at its slowest pace in about one-and-a-half years last month because of decreasing demand and growing competition for new business, an HSBC survey showed yesterday.
The HSBC Taiwan manufacturing headline indicator, or the purchasing managers’ index (PMI), fell to 50.5 last month, down from 53.8 in June — the lowest reading in 16 months.
That signaled a marginal strengthening of business conditions in the local manufacturing sector, the survey said.
A reading over 50 on HSBC’s PMI, which is used to gauge the health of an economy’s manufacturing sector, means the sector is still growing, while a reading below 50 represents slowdown.
“Easing demand elsewhere in the world is weighing on growth in Taiwan. Slowing new export orders, and a dip in output growth at the start of the second quarter, point to a more challenging second half for the island’s economy,” Frederic Neumann, co-head of Asian Economic Research at HSBC, said in the report.
HSBC said that incoming new business received by manufacturers in Taiwan fell for the first time since March last year as new export orders fell last month, with manufacturers noting a drop in new work received from the European market.
Output also declined, reflecting the drop in overall new orders, although the rate of contraction was only marginal, the report said.
Nonetheless, backlogs of work at manufacturers decreased, snapping a 15-month streak of accumulation, with stocks of finished goods showing signs of dropping as many manufacturers said that they were deliberately aiming to reduce inventories.
In spite of the falls in production and new orders, employment in the manufacturing sector continued to rise last month as companies intend to expand output capacity, HSBC said.
“However, this is a mere slowdown and not the start of a double-dip: Employment growth is still robust and inventories lean, suggesting that local consumption will remain supportive and a full output crunch is unlikely,” Neumann said.
Meanwhile, the rate of input cost inflation has fallen sharply for the second consecutive month as raw material price rises eased, although shortages of certain raw materials have maintained overall price increases, the report said.
Purchasing activity increased only slightly last month as suppliers’ delivery times worsened again, predominately reflective of shortages of raw materials from vendors.
Because of lower cost rises and strong competition for new business, output prices fell for a second successive month, according to the report.
“Easing price pressures, too, suggest that policy makers can afford to remain accommodative for the time being,” Neumann said.
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