Taiwan's manufacturing PMI improves but remains in contraction | Manufacturing Asia
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Taiwan's manufacturing PMI improves but remains in contraction

Export orders tumble to 17-month low.

Taiwan's Manufacturing Purchasing Managers' Index (PMI) improved, but remained within contraction territory in May, as US tariffs and mounting trade uncertainty continued to weigh heavily on production and new orders, according to the latest S&P Global survey data.

The Taiwan Manufacturing PMI rose to 48.6 in May from April's 47.8, but remained well below the critical 50.0 threshold that separates growth from contraction.

Whilst the rate of decline moderated from April's 16-month record, business conditions across the sector continued to deteriorate.

Export Orders plummet as client hesitancy grows

New export orders bore the brunt of the downturn, declining at the steepest pace in nearly 18 months as international clients showed increasing reluctance to commit to purchases.

Companies frequently cited US tariffs and heightened market uncertainty as key factors dampening overseas demand.

Total new business also fell solidly in May, though the rate of contraction eased slightly from the previous month. Manufacturing firms reported that weaker demand conditions both domestically and abroad were central to the ongoing deterioration in business conditions.

"Manufacturers in Taiwan reported weaker business conditions for the third month running in May, with panel members often highlighting the adverse impact of US tariffs and market uncertainty on demand," said Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence.

Production cuts and employment reductions continue

Reduced order books prompted manufacturers to scale back production for the second successive month, albeit at a more moderate pace than April's decline. Companies also continued to lower their purchasing activity as production requirements weakened.

Employment levels fell for another month as firms implemented cautious hiring policies, including recruitment freezes and decisions not to replace workers who left voluntarily. The rate of job losses, whilst modest, was the quickest recorded since September 2024.

Price pressures ease as costs fall

In a rare positive development, input costs decreased in May for the first time since July 2023, driven by lower raw material prices and favourable exchange rate movements. Companies seized upon these cost savings to offer more competitive pricing, cutting their selling prices for the third consecutive month at the quickest rate in nearly two years.

The decline in operating expenses provided some relief to manufacturers struggling with weak demand, allowing them to offer discounts as part of efforts to attract new orders.

Pessimistic Outlook persists despite slight improvement

When assessing the 12-month outlook, Taiwanese manufacturers remained downbeat about future production prospects for the second successive month. Whilst the degree of negative sentiment was less severe than April's reading, it remained markedly pessimistic overall.

Forecasts of lower production were often linked to concerns about the potential impact of US trade tariffs on global demand conditions, reflecting the ongoing uncertainty surrounding international trade relations.

Supply Chain challenges emerge

Despite lower demand for inputs, average supplier delivery times lengthened for the first time since January, albeit marginally. Firms often attributed this to insufficient supplier capacity, suggesting potential supply chain constraints even amid weakened demand.

The survey data, collected between 12-21 May 2025, underscores the challenges facing Taiwan's manufacturing sector as it navigates an increasingly complex global trade environment. With backlogs of work declining for the third straight month, the sector appears to be adjusting to a prolonged period of subdued demand.

The manufacturing downturn highlights Taiwan's vulnerability to global trade tensions, particularly given its significant role in international supply chains and export-oriented economy.

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