Manufacturing activity in Taiwan accelerated last month on improving external and domestic demand, although the impact of Japan’s earthquake disaster started to feed through, an HSBC PLC report released yesterday said.
The HSBC Purchasing Managers Index (PMI), an indicator used to gauge the health of the manufacturing sector, rose for the fifth consecutive month to 58.2 last month, from 55.6 in March, as clients in domestic and overseas markets increased new orders, the report showed.
“Taiwan manufacturers are back on a firmer footing as they sail into the second quarter as evidenced by a strong rise in new business volumes,” said Donna Kwok (郭浩庄), an economist at HSBC Asia.
A PMI score above 50 indicates expansion, while readings below suggest a contraction.
Supply-side disruptions from Japan started to feed through, but an unexpected silver lining has emerged whereby orders are shifted from Japan to Taiwan as a result of recent natural disasters there, Kwok said.
Of the component measures, the sub-index on total new orders improved to 57.8 last month from 55.5 one month earlier, with survey respondents highlighting new business from China and Europe, the report said.
Companies struggled to source products last month as the Japanese earthquake weighed on global supplies of electronics components, the report said.
“Taiwan’s ability to benefit from [order shifts] will be increasingly put to the test this quarter as supply disruptions continue and the West’s recovery rolls over,” Kwok said.
Insufficient raw material supplies, coupled with the growth in new orders, drove the sub-index on work backlogs to 53.2 last month, from 51.5 a month earlier, the report said.
On the price front, input prices remained high at 77.1 and 57.0 last month, but eased off from 82.4 and 60.8 respectively one month earlier, the report said, suggesting some firms passed on greater cost burdens to clients by raising their prices.
About 64 percent of the respondents cited mounting raw material prices, especially of metals — including steel and cooper — as key input cost drivers last month, the report said.
The employment sub-index stood at 55.6 last month, above the expansion threshold for the 22nd month, although slowing from 57.0 in March, the report said.
The figures bode well for Taiwan’s job market recovery, which is necessary for domestic demand expansion, Kwok said.
However, wage inflation was not mentioned by respondents as a factor in the latest increase in input costs, the report said.
The absence of significant wage increase will curb consumer confidence, which may continue to lag job-search confidence, making it hard for gains from the manufacturing sector to translate into strong private consumption growth, Kwok said.
Against that backdrop, the central bank will maintain its current gradual pace of monetary normalization, raising benchmark interest rates 12.5 basis points a quarter, the economist said.