PMI rise overshadowed by apprehension over US budget cuts, HSBC report says

By Crystal Hsu  /  Staff reporter

Sat, Mar 02, 2013 - Page 13

The HSBC manufacturing purchasing managers’ index (PMI) for Taiwan expanded marginally to 50.2 last month, the slowest pace of growth in three months due to fewer working days in the month. However, it may accelerate over the coming months provided US spending cuts do not derail its domestic demand, the British banking group said in a report yesterday.

Despite the nine-day Lunar New Year holiday, manufacturing activity stayed in expansion mode last month, thanks to healthy demand at home and abroad — especially from China, Europe and the US.

“We expect this positive dynamic to continue in the coming months alongside China’s gradual pace of recovery,” provided US budget cuts do not throw US consumer spending into disarray, HSBC Greater China economist Donna Kwok (郭浩庄) said in the report.

The PMI seeks to reflect the condition of the nation’s manufacturing industry, with a score above 50 suggesting expansion and values below 50 indicating contraction.

The reading for last month was lower than the 51.5 reported in January and weaker than the long-term average score of 52.5, the report said.

Of the key component gauges, new business orders and new export orders eased to 51.1 and 51.0 respectively last month, compared with 52.4 and 51.3 in January, the report said.

Kwok attributed these slowdowns to seasonal factors and said that as the Lunar New Year falls in either January or February in different years, it creates havoc with annual comparisons and front-loading of activity prior to Lunar New Year holiday periods.

The average reading of data for both January and last month offers a better guide of the trend, the economist said, adding that under this basis, Taiwan’s manufacturing sector remains in a better shape this year compared with last quarter, affirming a gradual and steady recovery.

However, risks remain to the nation’s exports outlook as automatic funding cuts kicked in yesterday in the US, Kwok said.

“Taiwan could still take a stumble and the eventual impact could be still greater,” although China’s recovery has been, and continues to be, the focal point for Taiwan’s economy, Kwok said.

The US cuts, estimated at about US$85 billion, could deduct 0.6 percentage points from HSBC’s GDP growth forecast for the US at 1.7 percent this year, the report said.

It remains unclear whether the full amount or only parts of the scheduled cuts will take place, Kwok said.

“Any bigger-than-expected stumble in American consumer or business spending could hurt Taiwan’s export-dependent growth outlook,” the economist said.