Taipei: Manufacturing activity in Taiwan weakened and fell into contraction mode in June amid tariff concerns, the Chung-Hua Institution for Economic Research (CIER) said Tuesday. After just one month of expansion in May, Taiwan's purchasing managers' index (PMI), which reflects manufacturers' view on market conditions, dropped by 1.4 to 49.6 in June.

According to Focus Taiwan, the non-manufacturing index (NMI), the services-sector counterpart to the PMI, rose by 2.4 points to 54.3, marking the fourth consecutive month of expansion. Index readings above 50 indicate expansion, while those below 50 signify contraction.

Among the component parts of the PMI, the sub-indexes for new orders and employment have been in contraction since May, while the production sub-index fell from expansion into contraction. Meanwhile, the sub-indexes for inventories and supplier deliveries continued to indicate expansion, although inventory growth slowed in June.

The sub-index measuring the six-month outlook dropped 1.1 points to 39.8, marking a third consecutive month of contraction, CIER data indicated. Wang Jiann-chyuan, vice president of the Taipei-based think tank, explained that the looming deadline in the pause on the United States' "reciprocal tariffs," shifts in supply chains, and the appreciation of the Taiwan dollar all contributed to operational uncertainty for businesses.

Pai Tsung-cheng, head of the Supply Management Institute, said that some businesses received too many orders and therefore suffered substantial exchange loss as the Taiwan dollar appreciated. However, Taiwanese firms are resilient and are actively assessing exchange risks to prepare for their next moves, he said.

Academia Sinica economist Kamhon Kan noted that most industries are expecting a contraction, as advance orders largely came to an end in May. However, he also mentioned that demand related to artificial intelligence (AI) remains strong and may flourish until next year.

Meanwhile, although the NMI has risen and remains in expansion, the outlook over the next six months for the service sector only increased by 0.3 to 40.3, marking the fourth consecutive month of contraction for the sub-index, according to CIER. This reflects the fact that some industries are facing a slow peak season, unclear macroeconomic developments, and reserved consumption, CIER said.