The Nikkei Taiwan Manufacturing Purchasing Managers’ Index (PMI) slipped to 48.7 last month — its first retreat into negative territory in 29 months — as industrial production and new orders cooled.
The latest data suggest that the local manufacturing sector has started to feel the pinch of escalating trade tensions between the US and China, and turned pessimistic about the business outlook.
“The overall health of Taiwan’s manufacturing industry declined at the start of the fourth quarter, as production, new orders and exports all fell at the quickest rates in over three years,” said Annabel Fiddes, principal economist at IHS Markit, which compiles the survey.
PMI values smaller than 50 indicate a contraction, while a figure above the threshold suggest an expansion.
The figure stood at 50.8 in September.
Taiwanese companies generally reported slack demand from customers at home and abroad, and were negative about the rest of the year amid concern that the US-China trade dispute would affect their performance, Fiddes said, adding that output levels are unlikely to improve in the near term as purchasing activity slows.
The sub-indices on manufacturing production and new orders both declined at the fastest pace in more than three years, the PMI survey found.
In addition, export sales were down.
Listless demand drove firms to cut back on purchasing activity and turn conservative toward inventory building, with stocks of both finished items and inputs rising only slightly, it said.
Employment increased for the second month in a row and the pace of job creation held relatively steady, it said.
A lack of stock at suppliers stretched delivery times for inputs, while work backlog rose at the slowest pace since June 2016, it said.
However, input costs continued to swell due to raw material prices hikes, it said.
Higher cost burdens led firms to raise selling prices last month, although the rate of increase was the mildest in 14 months, it said.
For the first time since the middle of 2016, Taiwanese manufacturers expressed pessimism toward the 12-month business outlook, it said.
Companies that expect output to decline attribute the weak sentiment to concerns over the US-China trade spat.
Domestic and foreign demand is expected to decline over the next 12 months as a result of tit-for-tat tariffs on bilateral exports by the world’s two largest economies, the survey cited firms as saying.
China is Taiwan’s largest export market, accounting for about 41 percent of its outbound shipments last year, while the US made up 11.7 percent.
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