Taipei: Taiwan's manufacturing sector stayed in the "green" zone for the second consecutive month in April, despite a slight decline in the business climate score due to tensions in the Middle East, as reported by the Taiwan Institute of Economic Research (TIER) on Monday.
According to Focus Taiwan, robust demand related to artificial intelligence provided ongoing support to the manufacturing sector. However, early inventory purchases by some firms, in response to the Middle East conflict, impacted trade-related indicators and contributed to a marginal decrease in the business climate signal value. The composite index for the manufacturing sector saw a reduction of 0.97 points, falling to 13.66 in April from a revised 14.63 in March. Despite this decline, the overall signal remained green, indicating stable growth.
TIER noted that a significant rise in export prices bolstered the pricing component of the index in April. However, there was a slowdown in year-on-year growth for exports, imports, export orders, and industrial production compared to March, leading to a modest drop in the overall score. Sustained demand for AI, high-performance computing, and cloud services continued to fuel growth in Taiwan's electronics and machinery industries, offering vital support to the manufacturing sector.
Conversely, traditional industries faced challenges from fluctuating energy prices, uneven recovery in end-market demand, and increasing international competition. The plastics and rubber products industry showed improvement, moving from a green light to a yellow-red light, indicating rapid growth due to rising international oil prices that elevated product prices and encouraged increased customer purchases.
Meanwhile, the electronic components industry shifted from a red signal, indicating overheating, to yellow-red, despite ongoing double-digit growth in exports, imports, export orders, and production. TIER explained that this slowdown was due to inventory adjustments by some end customers, leading to moderated annual growth rates from March.
Looking forward, TIER referenced forecasts by hi-tech market research firm TrendForce, predicting that capital expenditure by major global cloud service providers will maintain double-digit growth through 2026. Continuous demand for AI servers and data centers is expected to support shipments of advanced chips, advanced packaging, and high-speed switches, benefiting Taiwan's electronics and machinery sectors.
However, the institute cautioned that unresolved geopolitical risks in the Middle East could continue to disrupt global supply chains through fluctuations in energy prices and shipping costs. Other uncertainties include future U.S. trade policies, monetary policy adjustments by major economies, and an uneven recovery in global end-market demand. TIER anticipated that Taiwan's manufacturing sector would remain stable in the near term, driven by ongoing demand from the AI supply chain, but noted that developments in geopolitics, energy prices, and end-market demand will remain key factors influencing the industry's outlook.