Growth of Taiwan manufacturing sector maintained in March

The headline HSBC Taiwan Manufacturing Purchasing Managers’ Index posted 62.7 in March, a slight increase from February’s reading of 62.5. This indicated a substantial improvement in business conditions within the Taiwanese manufacturing sector.

Overall incoming new business rose for a 12th successive month in March, and at a substantial rate. However, the pace of new order growth slowed marginally since February. While strong demand was reported from both domestic and overseas markets, export demand eased on the month. This was reflected by a weaker, albeit substantial, rate of expansion of new export orders during March.

The sustained improvement in overall new order volumes drove a further sharp rise in output at Taiwanese manufacturing companies. The increase in production supported the fourth successive acceleration in the rate at which business conditions in the Taiwanese manufacturing economy improved.

Despite the maintained increase in output, backlogs accumulated at the fastest pace in the series history, suggesting that pressure on production capacity continued to prevail. Highlighting this, stocks of finished goods were reduced during March to partially fulfill new order obligations and increased shipments.

Employment at Taiwanese manufacturing companies rose markedly in March. Anecdotal evidence suggested that the increase in staffing levels reflected pressure on operating capacity and a further anticipated rise in new order volumes.

Input prices faced by manufacturers in Taiwan increased considerably in March, extending the current period of input cost inflation to ten months. Increased costs were driven by higher raw material prices. This led to a seventh successive monthly rise in charges, with the latest increase the strongest in the series history.

The expansion in output supported a further substantial increase in purchasing activity during March. This was compounded by expectations of further rises in input costs and manufacturers’ aims to rebuild stocks, which lifted buying volumes further. Subsequently, suppliers’ delivery times slowed for a 10th consecutive month.

Commenting on the Taiwan Manufacturing PMI survey, Frederic Neumann, co-head of Asian economic research at HSBC, said: “Taiwan's economy continued its strong run over the past month, with sharp growth in exports also reported. The labor market, as a result, is starting to tighten as firms add more employees, likely benefitting consumption over the coming quarters. Production, should hold up well in the near-term with inventories lean. Worryingly, however, firms continue to report strongly rising input and output prices, which may ultimately stoke broader inflationary pressures and a more aggressive monetary policy response.”