Manufacturing activity dips into contraction after short growth streak

Taipei, Feb. 10 (CNA) Taiwan's manufacturing activity fell into contraction mode in January after having shown expansion the previous two months, in part due to lower export orders, the Chung-Hua Institution for Economic Research (CIER) said on Monday.

The seasonally adjusted purchasing managers' index (PMI), a key economic indicator that gauges the fundamentals of the manufacturing sector, fell 2.1 points from a month earlier to 48.7, the monthly data released by the CIER showed.

The decline in PMI was mainly due to seasonally adjusted new orders and production falling into contraction mode, the CIER said.

Seasonal factors, such as the Lunar New Year holiday beginning in January, and other factors such as manufacturers becoming cautious and carefully adjusting their inventories as they wait to see what United States President Donald Trump will do on tariffs, were also at play.

The January sub-index for the business outlook over the next six months, however, surged 5.6 from a month earlier to 51.7, breaking its four-month contraction streak, but Trump's decision to impose tariffs after the Lunar New Year was not reflected in the monthly data, the CIER said.

In the service sector, the non-manufacturing index (NMI) fell 1.5 from a month earlier to 55.0 in January, remaining in expansion mode for a 27th month in a row, according to CIER data.

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

Noting that Trump has said he will impose a new 25 percent duty on all steel and aluminum imports into the U.S., CIER President Lien Hsien-ming (連賢明) said at a press briefing that the measure will have only a limited effect on Taiwan because they account for only a small part of total exports.

What should concern Taiwan, Lien said, was if Trump imposes duties on Taiwan-made semiconductors because of the high U.S. goods trade deficit with Taiwan, which rose by more than 50 percent from a year earlier in 2024 to over US$60 billion.

The tariff threats have brought uncertainty to Taiwan and led companies to check whether they should make inventory adjustments, Lien said.

Taiwan also has to think about how to communicate with the U.S. on the possibility of U.S. tariffs on semiconductors imported from Taiwan, Lien said.