Taiwan’s manufacturing index shrank for the first time in 18 months last month, indicating the nation’s export-dependent economy is slowing down, although the rate of contraction is marginal, a survey released yesterday by HSBC showed.
The HSBC Taiwan purchasing managers index (PMI), which polls 300 purchasing managers on a monthly basis to gauge local manufacturing activity, declined to 49.2 last month, from 50.5 in July, the first reading below the neutral level of 50 since March last year, the report said.
“Taiwan’s PMI fell below 50 for the first time since March 2009, driven by a drop in new orders from the US and Europe in an increasingly murky external environment,” said Donna Kwok (郭浩庄), HSBC economist on Greater China.
A reading above 50 means the manufacturing sector is expanding and a score below 50 means the industry is contracting. PMI is an important economic indicator because Taiwan is a leading exporter of consumer electronics and is home to the world’s largest contract makers of semiconductors, flat panels and personal computers.
Last month’s data signaled a reduction in purchasing activity at Taiwan’s manufacturers, although the retreat was marginal and much less serious than in December 2008 at the height of the global financial crisis, the report said.
New orders received by manufacturers dropped for the second straight month and at a faster pace to 46.4 last month, from 47.2 in July, the report said. This meant industrial production last month slowed from its year-earlier and month-earlier levels.
However, delivery time continued to lengthen last month because of shortages of raw materials at suppliers, which in turn pushed up input and output prices, the report said.
Input and output subindexes rose to 57.5 and 50.2 last month, from 50.2 and 47.8 in July respectively.
Kwok said monetary conditions would likely stay accommodative because the price pressures were temporary.
“Chances of an unexpected and overly aggressive monetary tightening remain slim given the seasonal volatility of raw materials,” Kwok said.
PMI readings are also frequently used to predict inflationary pressure, although economists assign more importance to consumer prices.
Last month’s data put a heavier burden on domestic demand to bolster the economy in the second half.
The employment subindex remained above 50 for the 14th month at 53.0 last month from 53.9 in July, the report said, attributing the increase in staffing to addition of new production lines.
“Employment growth remains solid, which suggests local consumption should rev back up in the coming months, helping domestic demand to buffer the impact of a still shaky external economic environment,” Kwok said.
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