Tue, Aug 02, 2022 page12

• PMI contracts for first time since 2020

  ‘BETTER WATCH OUT’: Businesses that rely on a few customers and cannot negotiate prices should especially be on the lookout for potential cash flow problems, CIER said

  • By Crystal Hsu / Staff reporter
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  The official manufacturing purchasing managers’ index (PMI) last month slipped into the contraction zone for the first time in two years, as firms from different sectors reported sluggish end-market demand and heavy pressure for inventory corrections, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday.

  The economic barometer last month shed 5.8 points — the fastest retreat in 10 years — to 47.8, ending the expansion cycle induced by COVID-19 for the past 24 months.

  “Firms had better watch out for their account receivables to make sure they have sufficient cash flows during a slow season and economic uncertainty,” the Taipei-based think tank said.

  

  China Steel Structure Co workers operate equipment at a factory in Tainan’s Kuantien District on Jan. 6.

  Photo: Yang Chin-cheng, Taipei Times

  PMI data seek to gauge the health of the manufacturing industry, with values larger than 50 suggesting expansion and those lower than the threshold indicating contraction.

  Major sectors, especially electronics and optical device suppliers, were hit hard by an inventory glut and tepid sales, although suppliers of food products and transportation tools bucked the trend to remain in expansion mode, CIER said.

  The critical sub-index on new business orders tumbled 10.8 points to 36.6, its worst level since June 2020, while the reading on industrial production shed 7.8 points to 43.8, it said.

  S&P Global Market Intelligence made similar observations, saying that the operating conditions in Taiwan last month deteriorated at the quickest rate in more than two years and firms became increasingly conservative about their prospects.

  “It seems likely that output could soften further in the months ahead unless there is a marked improvement in client demand,” S&P Global Market Intelligence economics associate director Annabel Fiddes said in a statement.

  Fiddes blamed the downturn on languid global demand and rising production costs, which led to a sharp decrease in purchasing activity and inventory building.

  Local manufacturers are looking at a bleaker picture moving forward, with the six-month business outlook shrinking 7 points to 30.1, despite the high season for technology products beginning, the CIER survey showed.

  CIER president Chang Chuang-chang (張傳章) said that prices for base metals, plastics and other raw materials declined, but not fast enough, explaining why inventory adjustments have been slower than expected.

  The institute urged companies, especially those reliant on a few customers and unable to negotiate prices, to carefully screen customers and raise cash positions to prevent potential cash stress in the coming months.

  Service providers fared better last month as the non-manufacturing index gained 7 points to 56.7, rebounding to expansion territory, Chang said, attributing the pickup to a steady decline in the number of local COVID-19 cases.

  However, firms are apprehensive about their business prospects, as wholesale, warehousing and logistics service providers depend heavily on exports, he said.

  The caution is warranted as international research bodies trimmed their growth forecasts for the US and China, which account for more than 50 percent of Taiwanese exports, Chang added.
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