Taiwan manufacturing slump worsens as trade fears mount

Companies reported sharp falls in new orders and export sales.

Taiwan's manufacturing sector tumbled deeper into decline in July, with output falling at the steepest rate in nearly two years as trade uncertainty continues to batter the island's industrial heartland.

The latest Purchasing Managers' Index (PMI) from S&P Global dropped to 46.2 in July from 47.2 in June, marking the fifth consecutive month of contraction. Any reading below 50 indicates a shrinking sector.

Companies reported sharp falls in new orders and export sales—both declining at their fastest pace since August 2023—as customers remained reluctant to commit to purchases amidst lingering concerns over potential US trade tariffs.

"Uncertainty over any future US trade agreement and tariffs were often mentioned by companies that cut production and experienced reduced sales," said Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence.

The manufacturing slump has prompted firms to slash purchasing activity at the sharpest rate in almost two years, whilst employment levels continue to be trimmed. Companies have implemented hiring freezes and chosen not to replace staff who leave voluntarily.

Business confidence has plummeted to its lowest level in two-and-a-half years, with manufacturers now expecting output to fall over the coming 12 months—the most pessimistic outlook since early 2023.

Supply chain disruptions have added to manufacturers' woes, with delivery times lengthening due to low stock levels at suppliers and shipping delays. Despite reduced demand, some firms reported inventory accumulation as sales continued to disappoint.

Price pressures remain mixed, with input costs rising modestly—particularly for metals and raw materials—whilst companies continue offering discounts to attract new business, leading to slight falls in selling prices.

The deteriorating conditions reflect broader concerns about Taiwan's economic outlook as global trade tensions persist. The island's technology-heavy manufacturing base remains vulnerable to shifts in international trade policy, particularly given its significant exposure to US markets.

Manufacturing employment has now declined for nearly a year, with firms pointing to spare capacity as backlogs of work fall at their steepest rate since December 2023.

The data underscores Taiwan's economic challenges as manufacturers grapple with weak global demand and an uncertain trade environment that shows little sign of improving in the near term.