Taiwan’s manufacturing activity continued to expand in May for the 23rd consecutive month but the pace of expansion slowed, according to the latest Purchasing Managers’ Index (PMI) for Taiwan compiled by the Chung-Hua Institution for Economic Research (CIER).
Taiwan’s seasonally adjusted PMI, which measures the health of the manufacturing sector, fell 2.8 points in May from a month earlier to 53.5, the lowest since July 2020, the CIER, a leading Taiwanese think tank, said Wednesday.
The CIER attributed the slower pace in expansion mainly to drops in the sub-indexes for new orders and production to 45.6 and 47.9, respectively, both the lowest since July 2020.
In addition, the PMI sub-index for the business outlook over the next six months saw its first contraction since August 2020, falling by 8.9 points from April to 44, according to the CIER.
Meanwhile, growing concerns over COVID-19 amid a spike in new domestically transmitted cases also caused the further decline in May of the non-manufacturing index (NMI), which covers service sector activity, according to the CIER data.
The NMI fell 10.0 from a month earlier to 45.1, its lowest level since May 2021 and turned from expansion to contraction, indicating weakness in domestic demand due to COVID-19, according to the CIER.
For the PMI and NMI, readings above 50 indicate expansion, while those below 50 represent contraction.
The development of the manufacturing sector this year has displayed three main trends, CIER vice president Wang Jiann-chyuan (???) said.
First, the performance of the manufacturing sector in the second half of 2022 is expected to be weaker than the first half, according to Wang.
This is evident that the manufacturing sector expanded at a faster pace in the first quarter of this year than in the second quarter as export orders began to decline from April mainly due to the impact of China’s COVID-19 lockdowns.
The decline was caused by restrictions on the manufacturing industry, downward revisions of economic growth forecasts for the U.S. and China and reduced demand for Taiwan’s electronics products, Wang said.
Meanwhile, upstream operators in the manufacturing industry will outperform downstream operators, Wang added.
In addition, thanks to emerging business opportunities such as 5G, high-performance computing and the Internet of Things, the electronics industry is likely to outperform the information industry which has been affected by weaker demand for consumer products, according to Wang.
Kamhon Kan (???), an economist at Academia Sinica’s Institute of Economics, said that despite the declining PMI figure, he is still optimistic about the manufacturing outlook as China eases its COVID-19 restrictions and forecast long-term demand for 5G and electric vehicles.
In terms of the NMI, CIER President Chang Chuang-chang (???) noted that the sub-index for the general business outlook over the next six months contracted for the second month in a row, falling 9.9 percentage points to 35.8, the lowest level since June 2020.
This indicates that interest rate hikes, inflation and the COVID-19 pandemic have dealt a blow to the service sector, according to Chang.
Meanwhile, the CIER on Wednesday said that Taiwan’s central bank is expected to raise its key interest rates by 12.5 to 25 basis points at its quarterly board of directors meeting in June.
While raising interest rates is not the only tool to contain inflation, it is one of the most effective means to curb inflation expectations, according to Chang.
Source: Focus Taiwan News Channel