Taipei: An index gauging the state of Taiwan's economy showed signs of warming in November, driven by a surge in demand for AI applications, potentially leading to economic overheating, the National Development Council (NDC) reported on Monday. Another index of leading indicators, which predicts the economy's trajectory over the next six months, also increased in November, according to the NDC.
According to Focus Taiwan, the composite index of economic indicators rose by 2 points in November to 37, indicating a warming "yellow-red" light, close to transitioning into a "red light," a signal of overheating. The NDC employs a five-color system to monitor the economy: red (38-45 points) for overheating, yellow-red (32-37 points) for a warming economy, green (23-31 points) for stable growth, yellow-blue (17-22 points) for sluggishness, and blue (9-16 points) for contraction.
Chen Mei-chu, head of the NDC's Department of Economic Development, explained that Taiwan is benefiting from robust demand for AI and high-performance computing devices. Additionally, peak season effects in the fourth quarter have further bolstered exports. Among the nine components of the composite index, the sub-index for sales in the wholesale/retail and food/beverage sectors advanced from yellow-red to red, while the business sentiment sub-index among manufacturers improved from blue to yellow-blue.
Chen noted that AI enthusiasm has strengthened the wholesale sector, and retailers have been uplifted by promotional campaigns. Meanwhile, global price competition's easing has positively impacted manufacturers' sentiment. The other seven factors-money supply, stock prices, industrial production, overtime hours, merchandise exports, manufacturing sector revenue, and machinery and electric equipment imports-remained unchanged during the month.
The leading indicators rose for the fourth consecutive month, increasing 0.48 percent from the previous month to 101.70 in November, indicating potential stable growth in the coming months, according to Chen. Among the seven leading indicator components, sub-indexes for export orders, money supply, stock prices, and manufacturers' business sentiment moved higher, while those for employment, floor area of new construction projects, and imports of semiconductor equipment declined.
Chen cautioned that AI has created a "must-have" demand globally, potentially pushing Taiwan into the "red light" territory in the upcoming months, presenting both "opportunities and challenges" for the economy.