PMI returns to expansion after 14 months of contraction

Taipei, June 3 (CNA) Taiwan's manufacturing activity returned to expansion in May, ending a 14-month period of contraction, as the export-oriented semiconductor and electronics industries enjoyed an increase in global demand, the Chung-Hua Institution for Economic Research (CIER) said Monday.

Data compiled by CIER, one of the leading economic think tanks in Taiwan, showed the purchasing managers' index (PMI), a measure of the prevailing direction of economic trends in manufacturing, soared 6.0 points from a month earlier to 55.4 in May, the highest level since April 2022, when the index stood at 56.3.

In the service sector, the non-manufacturing index (NMI) rose 0.1 points from a month earlier to 54.2 in May, remaining in expansion mode for a 19th straight month, the data indicated.

For the PMI and NMI, readings above 50 indicate expansion, while those below 50 represent contraction.

Speaking with reporters, CIER economist Chen Hsin-hui (陳馨蕙) said as demand from the United States and China, the top two economies in the world, showed signs of a recovery, international brands have been rebuilding their inventories in response.

Among the five major factors in the May PMI, the sub-indexes for new orders and production stood above the 60 point mark at the same time for the first time since November 2021, hitting 63.8 and 61.0, respectively, up 13.7 and 10.9 from a month earlier.

The strength of the recovery in the two factors appears significant, Chen said.

The sub-indexes on employment, supplier deliveries and inventories also moved higher from a month earlier by 1.0, 2.2 and 2.1, respectively, from a month earlier to 50.3, 52.5 and 49.2 in May, with only inventories remaining in contraction.

The sub-index on the business outlook over the next six months expanded for the fourth consecutive month in May, up 4.9 from a month earlier to 60.1 in May, the highest since March 2022, when the sub-index stood at 60.9.

By industry, the sub-indexes on the chemical/biotech, electronics/optoelectronics, food/textile and basic raw material industries moved higher from a month earlier and all four were in expansion, CIER said.

On the other hand, the sub-indexes on transportation equipment and electrical equipment/machinery industries moved lower and were both in contraction, CIER added.

Steve Lai (賴樹鑫), executive director of the Supply Management Institute in Taiwan, said Taiwan's tech sector benefited from global enthusiasm over artificial intelligence developments as the local electronics industry is well positioned to meet rising growth in AI applications.

Emerging technologies are expected to continue to lead Taiwan's manufacturing sector growth and the local PMI is likely to stay in expansion mode over the next few months, Lai said.

CIER Vice President Chen Shin-horng (陳信宏) was more cautious, saying AI development has not brought in long-term orders to all manufacturers with some only receiving short-term orders.

For his part, Wang Jiann-chyuan (王健全), acting president of CIER, also warned that growth in the manufacturing sector is uneven.

As for the NMI, the sub-index on employment rose 1.1 from a month earlier to 54.7 in May, while the sub-index on supplier deliveries remained unchanged at 52.0. In addition, the sub-indexes on business activity and new orders fell 0.1 and 0.6, respectively, from a month earlier to 56.6 and 53.6 in May.

Also in the NMI, the sub-index on business outlook over the six months soared 8.7 from a month earlier to 63.6 in May.

The improving business outlook came on the back of a booming stock market, an increase in mortgage subsidies provided by the government to the young generation, promotional campaigns by retailers for Mother's Day as well as a rise in freight rates in the global shipping industry, Chen said.