Thu, Feb 02, 2012 - Page 12 News List

HSBC index sees ongoing contraction

RISKY BUSINESS:Although short-term Lunar New Year demand boosted the sub-index for export orders, significant downside risk remains as a result of the eurozone debt crisis

By Crystal Hsu  /  Staff Reporter

The HSBC manufacturing purchasing managers’ index (PMI) for Taiwan edged up to 48.9 points last month, suggesting the nation’s business conditions were in contraction for the eighth consecutive month, a report by the British banking group showed yesterday.

The PMI is a leading gauge of manufacturing industry health, where a value above 50 points indicates expansion, while a reading below 50 suggests a contraction.

The latest PMI reading, while edging closer to the neutral mark compared with 47.1 in December, pointed to sustained weak external demand that is likely to strain Taiwan’s export-oriented economy going forward, HSBC economist Donna Kwok (郭浩庄) said in the monthly report.

“Taiwan’s manufacturers are still struggling, but the deterioration of operational conditions is stabilizing,” Kwok said.

However, it is too early to declare the nation immune from faltering European demand until the impacts of the Lunar New Year holiday and Thailand’s floods fade, she said.

New incoming business flows from local and foreign buyers were still contracting, with the new orders sub-index at 47.4 last month, up from 44.3 one month earlier, Kwok said.

The new export orders sub-index climbed to 46.9 last month from 42.8 in December, probably as a result of Lunar New Year holiday demand at home and from China, the report said.

Meanwhile, destocking eased further last month and the sub-index on stocks of finished goods inched up from 47.6 to 48.1, while the reading on purchase stocks improved from 46.5 to 48.2, the report showed.

Employment conditions stayed nearly unchanged in the manufacturing sector last month from one month earlier, with the sub-index standing at 50.2, versus 50.9 in December, the report said.

The efforts made by some companies to increase production capacity were offset by unpaid leave used by other firms to cope with falling orders, leading to an overall stagnation in staffing levels, Kwok said.

The employment reading is the only sub-index above the neutral mark of 50 and could continue to lend support to consumer spending amid slowing business activity, she said.

The input price sub-index was below 50 for the fourth straight month with the sub-index standing at 49.3, from 47.5 one month earlier, because of reduced demand for raw materials, the report indicated.

The output price sub-index stood at 48.5, compared with 48.4 in the last survey, as manufacturers lowered prices slightly in the hope of stimulating demand, the report said.

Overall, the nation's manufacturing sector showed promising signs of stabilization attributable mainly to short-term holiday demand, Kwok said.

With exports set to weaken in coming months, downside risks to GDP growth remain, she said, adding that the central bank could choose to cut interest rates next month to support the economy.

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