Taiwan industrial sector expanded at substantial pace in February

The headline HSBC Taiwan Manufacturing Purchasing Managers’ Index posted 62.5 in February, a marginal increase from January’s 61.7. This was indicative of substantial growth of the Taiwan manufacturing sector.

Rising new order volumes continued to support the overall increase in the headline PMI, with both domestic and overseas demand reported to have improved during February. New export orders grew at their fastest pace in 30 months, whilst the rate at which overall incoming new business expanded was the strongest since December 2006.

Taiwan manufacturers raised output substantially in February, reflective of the higher new order volumes received. However, the rate at which production expanded, which was the fastest since October 2007, was insufficient to keep pace with new order growth. Consequently, backlogs at manufacturers rose. The extent to which outstanding business accumulated eased marginally from the series high posted in January, and remained sharp.

Despite the steep rise in backlogs, stocks of finished goods increased marginally during the month. Anecdotal evidence suggested that manufacturers are rebuilding stocks in anticipation of continued strength in new business. Delays in shipments of completed orders also added to higher post-production inventories.

In response to higher output requirements, employment within the Taiwan manufacturing sector increased markedly in February. Growth was only slightly down on January’s series high.

Inflationary pressure continued to build considerably in February. Input prices increased at the fastest pace in the series history, displacing last month’s high, due to rising raw material prices. However, the rate at which output prices increased eased marginally since January, as strong competition prevented manufacturers from increasing their charges further.

Concerns over further rises in input costs led manufacturers to increase purchasing activity beyond the higher volumes already required to meet output growth. Suppliers’ delivery times slowed further, as vendors struggled to keep pace with increased orders.

Commenting on the Taiwan Manufacturing PMI survey, Frederic Neumann, senior Asian economist at HSBC, said: “Taiwan's economy has entered a sustained expansion cycle, with rising new orders pointing to further strength ahead. With global, as well as Asian, electronics demand expanding at a rapid clip, the island's economy looks set to expand this year at nearly 5 percent. Recent numbers, however, suggest that input prices are rising at a considerable pace in Taiwan, which may herald broader inflationary pressures. The authorities may therefore begin to tap on the breaks in the coming few months to prevent price pressures from escalating further.”