Fri, Jan 03, 2014 - Page 13 News List

Economy is recovering: think tank

READING the SIGNS:Taiwan is seeing stronger global demand, increasing new orders, climbing production and more PMI growth, yet some analysts are cautious

By Amy Su and Crystal Hsu  /  Staff reporters

Manufacturing activity improved last month for the 10th straight month, with the official purchasing managers’ index (PMI) rising to its highest level since June, according to a report released by the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) yesterday.

The official PMI reading stood at 53.6 last month, up 1.6 points from a month earlier, the Taipei-based think tank said.

A PMI of 50 and above represents expansion and less than 50 signifies a contraction.

The continual expansion in the PMI gauge last month, mainly driven by the rise in new orders and production, provided more evidence that the nation’s economy is gradually recovering, CIER president Wu Chung-shu (吳中書) said at a press conference.

The index — a leading indicator of the economic outlook over the next three to six months — comprises five subindices: new orders, production, employment, inventories and supplier deliveries.

The report showed new orders rose by 4.3 points to 57 points last month from a month earlier, expanding for the 14th straight month and reaching its highest level since March.

Meanwhile production climbed 4.4 points to 58 last month from the previous month and reached the highest level since April.

As for the other three subindices, employment remained above 50 for the 13th consecutive month, but the subindex slightly decreased by 0.1 points month-on-month to 53.6 last month, according to the report.

Supplier deliveries surged by 1.3 points from the previous month to 52.1, followed by inventories, which contracted for the fifth straight month, falling by 1.8 points to 47.5.

The PMI may fluctuate this month and next year because of the impact of the Lunar New Year holiday, but the trend of economic recovery is expected to remain unchanged, Wu said.

Separately, the HSBC also yesterday released its manufacturing PMI for Taiwan with the reading increasing to 55.2 last month, the highest in 21 months, as local manufacturers reported a strong expansion in new orders and output.

The steep pickup came as external demand displayed signs of recovery, with firms citing more orders from China, Japan and the US, the British banking group’s economist Ronald Man (文略韜) said.

Both output and new order subindices rose at a faster pace last month than in November and are well above their long-term average, Man said, adding that the improvement sustained employment growth.

Despite a brighter manufacturing outlook, there are reasons to stay cautious, given the recent string of official data, which have proved disappointing, the economist said.

Export growth remained sluggish in the second half of last year, while industrial production is still 2.8 percent below its post global-financial crisis peak, he said.

Corporate profit margins have also tightened, as local companies cut prices to sustain competiveness, while grappling with high energy and raw material costs, he added.

As such, HSBC expects GDP growth for Taiwan to be weak at 1.7 percent last year, down from an earlier forecast of 2.4 percent, Man said.

The central bank, which held the benchmark rediscount rate unchanged at 1.875 percent on Dec. 26, is likely to maintain its accommodating stance through the first half of this year in order to support economic recovery, the HSBC economist said.

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