The economy is showing signs of improvement, as the nation’s manufacturing purchasing managers’ index (PMI) last month rose to 57.7, based on the latest Chung-Hua Institution for Economic Research (CIER) survey. The question is whether the figure tells the whole truth about an extraordinarily volatile year such as this one.
The encouraging reading indicates that the economy has moved out of the woods and is faring better than most countries, as the government took early precautions against the spread of COVID-19. At its worst, the nation’s GDP dipped 0.58 percent year-on-year in the second quarter, but it would be premature to conclude that the economy has entered recovery mode.
The US-China trade dispute and the prospects of another wave of COVID-19 are major factors that could again send the global economy into a tailspin in a blink of an eye.
CIER said that the index rose for a third straight month last month, with the readings for new orders, production and employment all making good progress. It attributed the leading indicators’ improvement to orders potentially being transferred from Semiconductor Manufacturing International Corp (SMIC) after US manufacturing equipment suppliers, including Applied Materials Inc and Lam Research AG, were restricted from selling new advanced manufacturing machines to China’s biggest contract chipmaker.
The ban would restrict SMIC from further expanding its capacity. It is the second Chinese technology giant to be placed on the US’ “entity list” after Huawei Technologies Co.
However, SMIC is different from Huawei, which scrambled to obtain 5-nanometer chips worth billions of US dollars from the world’s sole 5-nanometer chip supplier, Taiwan Semiconductor Manufacturing Co, before its grace period ended on Sept. 15. SMIC’s clients have dozens of substitutes from which to obtain chips.
Taiwan’s United Microelectronics Co (UMC) and Vanguard International Semiconductor Corp, and GlobalFoundries and Samsung Electronic Co are to split the orders, once SMIC is faced with capacity constraints. SMIC is ranked the world’s No. 5 contract chipmaker with a small market share of 4 percent.
That might not provide a substantial boon for local chipmakers, as UMC and Vanguard are running their factories at full utilization and might have little room to absorb extra orders. However, the supply crunch is likely to cause prices to increase.
A rebound in the global economy is also supported by the positive reading for Taiwan’s economic outlook last month, as businesses reopened in some of the world’s cities amid stabilizing COVID-19 infections, CIER said. The improvement was across the board as the six segments covered by the institute all picked up for the first time since May last year, it added.
The pandemic is making the world economy unpredictable, as lockdowns could resume and stores could be forced to shut down if virus infections surge. New York yesterday said that it plans to shut down certain neighborhoods and closed some schools as COVID-19 cases climbed. In Europe, partial lockdowns have been reimposed to prevent a resurgence of the virus.
Taiwan has a trade and export-oriented economy and is unlikely to see growth when the global economy is grappling with the fallout of the pandemic. The nation’s electronics segment is indeed benefiting from rising demand for laptops and components used in those devices as working from home and online learning become the new normal. The nation’s economic pillars, such as the petrochemical and machinery tool industries, might report declines again if the pandemic resurges.
A brief rebound in economic indicators might boost people’s confidence regarding economic prospects, but the fast-changing external environment, domestic consumption and private investment remain important factors to watch.
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