The manufacturing purchasing managers’ index (PMI) last month slipped into contraction territory as Washington’s protectionist moves against China and Huawei Technologies Co (華為) heightened concerns over disruptions in the electronics supply chain, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday.
The decline reversed an uptick in April and added uncertainty to an expectation that ongoing inventory adjustments among local technology companies would soon end.
“The sour twist in the US-China trade dispute dealt a severe blow to business confidence, sending petrochemical, base metal and other raw material prices into a nosedive,” CIER president Chen Shi-kuan (陳思寬) told a news conference in Taipei.
Washington’s export controls against Huawei raised worries over disruptions in the global electronics supply chain, she said.
The PMI gauges the health of the manufacturing industry. Scores above 50 indicate expansion and values below the threshold suggest contraction.
The decline was evident across the board, as Taiwan is home to the world’s largest suppliers of chips, camera lenses, casings, touch panels and other critical components used in smartphones, laptops and other technology devices.
Makers of basic materials and electrical equipment were the hardest hit, as clients turned cautious about expansion, the survey found.
The sub-index on new business orders dropped from 50.9 to 47.5, while the measure on new export orders fell from 56.7 to 49.6, it said, adding that the reading on industrial output softened to 47.5.
Against the backdrop, firms cut back on staffing levels, pushing the employment sub-index down to 49.2, the survey found.
The sub-index on the business outlook for the next six months dropped from 55.7 to 48.5, the survey found.
The private Nikkei Taiwan manufacturing PMI also suggested contraction with a reading of 48.4.
“Taiwan’s economy could weaken further if the trade war intensifies and global economic conditions continue to cool,” said Annabel Fiddes, principal economist at IHS Markit, which compiled the private survey.
A decline in output prices was another worrying trend, Fiddes said, attributing it to a struggle between local firms to remain competitive and attract new orders.
Companies that focus on domestic demand fared better, with the non-manufacturing purchasing managers’ index standing at 54, CIER said in a separate report.
Almost all service-oriented sectors saw a pickup in sales, except for firms involved in wholesales, it said.
The trade dispute is eroding confidence in financial and insurance companies, with their six-month outlook gauge tumbling to 32, it added.
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