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Nikkei Taiwan PMI drops below 50

Nikkei Taiwan PMI drops below 50

TAIPEI: The Nikkei Taiwan Manufacturing Purchasing Managers’ Index (PMI) slipped to 49.4 last month, down from 50.6 in January, indicating a renewed deterioration in operating conditions for local manufacturers due to a drop in new business orders and output.

“Operating conditions deteriorated last month after a slight improvement in January amid reports of weaker economic conditions and softer client demand,” said Markit, which compiles the Nikkei PMI survey.

PMI readings aim to gauge the health of the local manufacturing industry. A PMI score above 50 indicates expansion and values below the threshold suggest contraction.

Although the degree of the contraction was minor, it was the first time the PMI has dropped below 50 in three months.

The official PMI compiled by the Chung-Hua Institution for Economic Research is due to be released on Monday next week.

The latest data suggest the nation’s export-orientated businesses are still facing headwinds stemming from sluggish demand at home and abroad, Markit economist Annabel Fiddes said.

That explains why new orders and output contracted, Fiddes said, as Lunar New Year-related demand faded away and orders for next-generation consumer electronic devices have yet to become evident.

New export contracts declined at their quickest rate since November last year, the survey showed.

PMI is an important economic bellwether, because Taiwan is home to the world’s largest chipmakers, chip designers, laptop and smartphone vendors and components suppliers.

Reduced production slowed employment growth across Taiwan’s manufacturing sector, with the rise in staff numbers being the weakest in four months, the survey indicated.

Weaker demand weighed on selling prices last month even though the rate of the reduction eased to a three-month low, the survey indicated.

Companies cited cheaper global prices of raw materials as the main source of deflationary pressure, the survey indicated, adding that the reduced prices were intended to spur client demand.

On a positive note, the absence of inflationary pressures suggests there is still room for monetary policymakers to introduce stimulus measures to prop up the economy if necessary, Fiddes said.

The central bank is widely expected to cut interest rates by another 12.5 basis points at its next board meeting later this month, after the People’s Bank of China on Monday lowered its reserve requirement ratio by 0.5 percentage points.

Taiwan relies heavily on China for economic growth.