S&P Global announced that after seasonal adjustment, Taiwan's S&P Purchasing Managers' Index (PMI) rose to 55.3 in April from the previous 53.3, marking the highest level since January 2022 and remaining in expansion territory for five consecutive months.

The latest data reflected faster expansions in output and new orders, supporting a recovery in momentum for Taiwan's manufacturing sector at the beginning of 2Q26. However, firms emphasized that supplier delivery delays have worsened to the most severe level in four years, while production costs remained elevated, with the increase among the largest in the survey's history. Growth momentum was partly driven by concerns over surging material prices and potential supply disruptions stemming from the Middle East conflict.

Manufacturers increased output in April, with the pace of expansion the second fastest since July 2024, slightly below that seen in February this year. Companies generally indicated that rising new orders, coupled with expectations that the Middle East war could trigger sharp price hikes or shortages of materials, prompted them to boost production as a precaution against escalating risks.

Total new orders expanded at the second-fastest pace since August 2021, trailing only February this year, also linked to increased stockpiling among clients. New export orders rose at the second-strongest pace since early 2022. Firms noted that export business was supported by a broad global client base, covering the United States, Europe, mainland China, Japan and SE Asia.

Amid stronger production demand and concerns over potential supply chain disruptions and soaring costs, firms raised purchasing activity from the previous month to build inventories in advance. The pace of expansion was the second highest in nearly four and a half years.

Against the backdrop of war-related disruptions and stronger input demand, supplier performance deteriorated sharply. Delivery delays were the most severe in four years.

The increase in input inventories was modest and the slowest in three months, as respondents cited tight raw material supply constraining stockpiling progress. Meanwhile, firms utilized existing finished goods inventories to fulfill orders, leading to a slight decline in post-production inventories.

Raw material shortages and shipping delays were also associated with a sharp rise in purchasing prices. Companies reported that the April cost increase was close to a five-year high and among the highest since the survey began in 2004. As a result, firms raised selling prices at the most marked pace since end-2021.

Despite solid growth in output and new orders, manufacturers further reduced headcount in April, though the pace of job cuts remained modest, mainly due to unfilled vacancies following staff departures.

Workforce reductions combined with rising new orders led to a continued accumulation of backlogs, with the rate of increase the second fastest since November 2021.

When assessing production over the coming year, Taiwan manufacturers were generally optimistic at the start of 2Q26. Although firms typically expected sustained improvement in client demand and increased investment in AI-related sectors, overall optimism slipped to a three-month low, with confidence dampened by uncertainties surrounding the Middle East situation, prompting a more cautious outlook.

Annabel Fiddes, Associate Director of Economics at S&P Global Market Intelligence, said the latest PMI data indicated that both producers and clients sought to build inventories during the Middle East conflict, supporting expansion in Taiwan's manufacturing activity.

The war has delivered the largest post-pandemic shock to supply chains and significantly pushed up production costs at the start of the second quarter. Rising oil prices fueled inflation, with firms reporting higher charges from suppliers, driving operating expenses to one of the highest levels in the 22-year survey history. The marked increase in selling prices suggested that cost pressures were largely passed on to customers.

On the positive side, business confidence remained relatively resilient despite falling to a three-month low, as many companies expected order demand to continue strengthening, particularly in AI-related fields. However, the ongoing Middle East conflict continues to cloud the production outlook, implying that firms will adopt a more cautious approach to future operations. (da/u)

AASTOCKS Financial News