Taiwan's manufacturing activity shifted from contraction to expansion in July, according to the latest purchasing managers index (PMI) reading by the Chung-Hua Institution for Economic Research (CIER) on Monday.

The PMI for July increased by 6.9 percentage points month on month to 51.4 percent after staying in the contraction range for three months, the CIER press release said.

A PMI above 50 suggests expansion, while below 50 means contraction.

Among the five sub-indexes, new orders, production, and employment transformed from contraction to expansion in July, while supplier deliveries continued to expand and inventory levels remained in the contraction range, according to the CIER.

The business outlook index for the next six months climbed by 5.2 percentage points to 49.3 percent, indicating an improving sentiment among manufacturers.

However, CIER President Chang Chuang-chang said that it is too early to say that the Taiwan economy has returned to its normal track since the global economy remained gloomy.

Local manufacturers have been cautious about the future development of the economy with fears of a second wave of COVID-19 outbreaks, Chang said.

For the services sector, the non-manufacturing index (NMI) rose by 3.3 percentage points from the previous month to 57.3 percent in July, according to the CIER.