Taiwan’s manufacturing activity expands for 18th straight month

Manufacturing activity in Taiwan remained in expansion mode for the 18th consecutive month in December but profit margins in the industry could decline in the first half of next year due to supply chain bottlenecks, the Chung-Hua Institution for Economic Research (CIER) said Thursday.

Data compiled by CIER, one of the leading think tanks in Taiwan, showed that the Purchasing Managers' Index (PMI) dropped 0.2 points in December from the previous month to 59.3, with the sub-index on the business outlook over the next six months remaining at 57.9, staying in expansion mode for the 17th consecutive month.

The PMI measures the health of the manufacturing sector, with readings higher than 50 indicating expansion and lower scores suggesting contraction.

Taiwan's manufacturing activity continued to pick up in the second half of this year and the manufacturing sector is expected to grow further in the first half of 2022 from now, CIER President Chang Chuang-chang (???) said.

Although almost all the sub-indexes of national factory activity indicated expansion, the manufacturing sector will not be as profitable as expected, and profit margin might weaken to 47.4 in the first half of 2022 compared with 48 in the second half of 2021, according to Chang.

The anticipated low profit margin could be attributed to soaring raw materials and supply chain bottlenecks that are expected to put pressure on production costs, Chang said.

In addition, Taiwan's minimum wage increase, which will take effect on Jan. 1, 2022, could also impose a heavy burden on businesses, giving rise to labor costs, which could squeeze their profit margin.

Also in December, the non-manufacturing index (NMI), which covers service sector activity, dropped 3.7 points from a month earlier to 58.6, marking the sixth straight month of expansion, CIER added.

The indicators gauging business activity or profit margin in the service sector all showed improvement in the second half of this year compared with the first half and are expected to rise further in the first half of next year, according to Chang.

The NMI is expected to keep going higher largely on the back of eased domestic COVID-19 situation and the issuance of spending vouchers to boost domestic consumption, said Chang.

The PMI is obtained through surveys of purchasing managers from interviewed enterprises every month and compiling survey results, according to CIER.

In the December survey, purchasing managers were asked for factual data about output, new orders, pricing, and employment among others.

In the survey, more than 60 percent of purchasing managers said that they expected consumer prices to rise in 2022 but this would not continue into the second half of the year.

Over 50 percent of survey respondents predicted that the Consumer Price Index (CPI) would increase no more than 2 percent in 2022.

Source: Focus Taiwan News Channel