The official manufacturing purchasing managers’ index (PMI) printed 41.4 last month, retreating to contraction mode after one month of expansion in January, as new business dried up over the holidays, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday.
The latest data drew a stark contrast with 51.3 one month earlier and suggested a sharp deterioration in the operating conditions for local manufacturers amid an extended international slowdown.
“The drastic decline renders talk of recovery premature, though some companies expect the economy to hit the bottom later this quarter,” CIER president Wu Chung-shu (吳中書) told a news conference.
PMI is an important economic indicator aimed at gauging the health of the manufacturing industry, with scores above 50 indicating expansion and values below the threshold reflecting contraction.
The pace of retreat is shocking, Wu said, as companies refrain from inventory building to avoid a supply glut. Volatile crude prices lend support to a conservative strategy.
The sub-index on new orders registered a steep fall to 37 last month from 53.4 in January, as firms across all sectors suffered a decline in business after holiday demand died out, the report said.
Likewise, the output sub-index took a nosedive from 55.3 to 29.4, as most firms closed over the holiday, the survey said.
The situation remained bleak, stripping the holiday effect, Wu said. The Lunar New Year and 228 Peace Memorial Day took out one-third of working days and the earthquake on Feb 6 added to disruptions.
The drab picture increases the chance of further interest rate cuts later this month, when the central bank holds its quarterly board meeting, Wu said.
The monetary policymaker lowered borrowing costs by 12.5 basis points in September and December last year to spur private investment and consumption.
Companies have a dim business outlook, with the sub-index standing at 48.7 last month, the report said, better than 42.5 in January.
The chemical and biotechnology sectors expect business to improve moving forward, while companies supplying electronics and optical products are looking at continued softness, the report said.
The non-manufacturing industry shared the weak sentiment after business declined further last month, dragging the non-manufacturing index to 42.9, from 48.8 in January, a separate report by CIER said.
Service-oriented firms expect the situation to worsen in the coming six months, with the outlook sub-index printing 32, now that the holiday effect is over and a recovery remains elusive, the report said.
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