(Bloomberg) -- South Korean chipmakers reduced their production by the most since 2008 in February, a sign of declining semiconductor demand that may be deeper and longer-lasting than feared. 

Production dropped 41.8% from a year earlier, worsening from a 33.9% fall in January, according to data from the national statistics office. Inventories increased by 33.5% and factory shipments fell 41.6%, adding to signs of continued weakness.

Chipmakers are important constituents of Korea’s trade-reliant economy, accounting for about 12% of the total exports in February. The deterioration of global chip demand adds to challenges for the country’s economy that already contracted last quarter from the previous three months.

Korean policymakers are hoping for a rebound in the second half and maintaining their focus on investment in semiconductors as a key growth engine for the economy. On Thursday, Korea’s parliament approved a boost to the semiconductor industry by giving firms tax breaks to spur investments.

Threats to Korea’s chip industry include rising US-China trade tensions and a potential economic recession that may further hurt demand as central banks keep tightening their policy to combat inflation. Growing layoffs by tech companies in the US also highlight weakening enthusiasm for investment. 

Separately, Korea’s total industrial output fell more than median forecast of a Bloomberg survey in February, sliding 8.1% from a year earlier. The cyclical leading index also fell 0.3% point from a month earlier.

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