Manufacturing sector in contraction for 4th straight month

Taipei, March 31 (CNA) Taiwan's export-oriented manufacturing sector remained in contraction mode for a fourth consecutive month in February but showed some improvement compared to January, the Taiwan Institute of Economic Research (TIER) said Friday.

The TIER's composite index, which measures the fundamentals of the manufacturing sector, rose 0.85 points in February from a month earlier to 10.49 but still flashed a "blue" light, indicating contraction, because it was below the 10.5-point mark cutoff.

In January, the composite index was 9.64, the lowest level since January 2020, when it hit 8.75 as the COVID-19 pandemic was just beginning.

After excluding seasonal effects which came with a 10-day Lunar New Year holiday in January, the local manufacturing sector still felt the pinch of a disappointing export performance, the TIER said.

The think tank uses a five-tier system to assess economic activity in the sector, with red indicating overheating, yellow-red showing fast growth, green representing stable growth, yellow-blue signaling sluggish growth, and blue indicating contraction.

The TIER said Taiwanese manufacturers have been hurt by weaker demand from end-users worldwide and faced continued inventory adjustments in global supply chains, leading to further declines in industrial production and export orders in February.

The silver lining, however, was that China's eased COVID-19 restrictions boosted demand, offsetting the impact of weakness in the U.S. and European markets, the TIER said.

Among the five factors in the February composite index, only the sub-index on pricing moved lower by 0.29 points from a month earlier.

The sub-indexes on the general business climate, costs, demand and purchases of raw materials moved higher by 0.78, 0.21, 0.11 and 0.04, respectively, from a month earlier.

The TIER said the increase in the general business climate factor reflected a rebound in the stock market on resumed production in China, leading manufacturers in Taiwan to feel more optimistic about the general business climate.

Citing a survey done last month, the TIER said 43.34 percent of respondents in the manufacturing sector said their business flashed a blue light in February, down from 73.52 percent in a similar poll conducted in January.

Another 42.10 percent said their business flashed a yellow-blue light February, up from 22.52 percent in January, and 13.10 percent agreed their business flashed a green light in February, up from 3.96 percent in the January poll.

As for individual industries, the TIER said, end user demand for consumer electronics devices remained weak and inventory adjustments continued in February, resulting in the electronics component sector flashing a blue light for the third consecutive month.

The computer and optoelectronics industry continued to flash a yellow-blue light in February as eased COVID-19 controls in China pushed up orders for wireless communications items and servers, reducing the impact of the fall in global demand, the TIER said.

In the old economy sector, the TIER said, the machinery industry faced a fall in shipments to flash a yellow-blue light for the fourth straight month in February.

Manufacturers worldwide scaled back their investment in production equipment because of their generally cautious attitude, but some large semiconductor suppliers continued their expansion, lending some support to the machinery industry overall.

Hurt by weaker global demand for steel, the base metals sector flashed a blue light for the ninth consecutive month in February, while the auto and auto part sector benefited from a recovery in car sales and an increase in automotive chip supplies to flash a green light in February, improving from a blue light a month earlier, the TIER said.

In the weeks and months ahead, the TIER warned that a series of bank crises hitting the U.S. and European markets in March created volatility in global financial markets.

The TIER said that despite a recovery in production and sales in China amid eased COVID-19 controls, investment from Hong Kong, Macau, Taiwan and other countries in the mainland China still fell, casting uncertainty over the global economy, the TIER added.