Manufacturing activity in contraction in April amid tariff concerns

Taipei, May 2 (CNA) Taiwan's manufacturing activity weakened significantly and fell into contraction in April, ending a two-month streak of expansion, the Chung-Hua Institution for Economic Research (CIER) said Friday.

The sector was weighed down by tariff policies under U.S. President Donald Trump, the Taipei-based think-tank said.

Data compiled by CIER, one of the leading economic think tanks in Taiwan, showed that the local purchasing managers' index (PMI), which gauges the fundamentals of the manufacturing sector, fell by 5.3 from a month earlier to 48.9 in April.

In the service sector, the non-manufacturing index (NMI) also moved lower by 2.8 from a month earlier to 51.0 in April, but stayed in expansion mode for the second straight month, CEIR's data indicated.

PMI and NMI readings above 50 indicate expansion, while those below 50 show contraction.

All of the five major factors in the April PMI moved lower from a month earlier with the sub-indexes for new orders, production, employment, supplier deliveries and inventories down 9.3, 8.3, 4.4, 0.7 and 3.8, respectively, to 47.5, 47.5, 46.6, 52.7 and 50.1 in April. Only supplier deliveries and inventories stayed in expansion.

In addition, the sub-index on the business outlook over the next six months plunged 23.1 from a month earlier to 36.0, the lowest since the COVID-19 pandemic in early 2020, according to CIER.

At a news conference, CIER President Lien Hsien-ming (連賢明) said the plunge in new orders and production caused the April PMI to fall sharply amid tariff concerns, while such worries also hurt business outlook over the next six month badly.

Trump first announced sweeping "reciprocal" tariffs on April 2 on countries that have high trade surpluses with Washington, including a 32 percent import duty on goods from Taiwan, before announcing a 90-day pause a week later to allow negotiations for a lower levy.

The 90-day pause is expected to create additional uncertainties to local exporters, Lien said.

By industry, the sub-indexes on all major industries -- the electronics and optoelectronics, food and textile, basic raw material, transportation equipment industries, chemical and biotech, and electricity and electric equipment industries -- trended lower from a month earlier, CIER said.

Only the electronics and optoelectronics, food and textile and electricity and electric equipment industries remained in expansion mode, CIER added.

In the service sector, CIER said, the sub-indexes on three of the four major factors -- business activity, new orders and employment -- moved lower by 3.8, 6.3 and 2.0, respectively, from a month earlier to 48.7, 48.5 and 51.2 in April, with employment still in expansion.

On the other hand, the sub-index for supplier delivery trended higher by 1.1 from a month earlier to 55.7, remaining in expansion mode.

The sub-index for business outlook over the next six months in the service sector tumbled 19.7 from a month earlier to 29.1 in April, the lowest since May 2020, according to CIER.

Commenting on the significantly stronger Taiwan dollar against the U.S. dollar, CIER economist Chen Hsin-hui (陳馨蕙) said that large exporters are likely to have greater bargaining power to negotiate with clients and mitigate the impact of foreign exchange fluctuations.

However, smaller exporters -- particularly those in the old economy industries -- could face greater challenges in coping with currency volatility, Chen added.

On Friday, the U.S. dollar closed down NT$0.953 or 3.07 percent at NT$31.064 against the Taiwan dollar, the lowest since Jan. 9, 2024, when the U.S. currency ended at NT$31.023.

The loss was the steepest single session decline for the greenback since 2002 on large fund inflows and a stronger equity market.