Manufacturing sector turns stable due to AI development

Taipei, April 30 (CNA) The local manufacturing sector became stable in March as the export-oriented Taiwanese economy was boosted by increasing artificial intelligence development, the Taiwan Institute of Economic Research (TIER) said Tuesday.

Data compiled by the TIER, a leading economic think tank in Taiwan, showed the composite index, which gauges the fundamentals of Taiwan's manufacturing sector, rose 3 points from a month earlier to 13.41 in March.

This meant it flashed a green light, which is an improvement on the blue light logged in February when the number of working days was cut by a seven-day Lunar New Year holiday.

It was the second green light so far this year, according to the TIER.

The TIER uses a five-tier system to assess economic activity, with red indicating overheating, yellow-red showing fast growth, green representing stable growth, yellow-blue signaling sluggishness, and blue indicating contraction.

In the first quarter of this year, the composite index stood at 13.22 on average, up 1.74 points from the fourth quarter of last year. This meant it flashed a green light -- indicating a range of between 13 and 16 -- an upgrade from the yellow-blue light logged a quarter earlier.

The TIER said the local manufacturing sector benefited from the global economic uptick, with manufacturing activity in China, Japan and the ASEAN bloc showing signs of improving.

The TIER added that more importantly, local manufacturers saw their sales rise due to emerging technologies including AI applications and cloud-based data services.

This helped boost the tech sector, the backbone of the country's exports, it said.

In addition, a booming stock market in March has also improved business sentiment among the manufacturers, the TIER said. During the month, the Taiex, the weighted index on the Taiwan Stock Exchange, soared 1,327.68 points, or about 7 percent, as tech stocks steamed ahead due to positive sentiment about emerging technologies.

Among the five factors in the March index, the 'general business climate' sub-index moved 1.38 points higher, while 'demand' was up 1.21 points and 'raw material purchases' rose 0.56 points from a month earlier, the TIER said.

Bucking the upturn, the pricing sub-index moved lower by 0.13 points and the costs sub-index dropped 0.01 points, both also from a month earlier, the TIER added.

Citing a survey conducted in March, the TIER said about 22.19 percent of the respondents in the manufacturing sector said their business flashed a blue light, down sharply from the 58.65 percent logged in February.

The TIER said 17.07 percent of the respondents said their operations flashed a yellow-blue light in March, down from 23.50 percent in February, while 45.26 percent said their operations flashed a green light in March, sharply up from 17.05 percent in February.

In addition, 11.00 percent of respondents said their business flashed a yellow-red light in March, compared with 0.80 percent in February, while 4.48 percent of them said their business logged a red light, the TIER said.

In March, the electronics component industry saw a strong demand for AI applications and high-performance computer devices. Orders received by pure-play wafer foundry operators, printed circuit board makers, and capacitor suppliers therefore rose, the TIER said.

As a result, the electronics component industry flashed a green light in March, improving from a yellow-blue light in February, according to the TIER.

As for the computer and optoelectronics industry, a yellow-red light was flashed in March, compared with a green light in February, following growing enthusiasm about AI and cloud-based data services, which led to increasing exports and production, the TIER said.

In the old economy sectors, the TIER said, the base metal industry continued to flash a blue light as demand for steel products stayed weak, while a hike in electricity tariffs and concerns over labor and water shortages made the industry more cautious about its business outlook.

The TIER said the auto and auto part industry flashed a green light in March, an improvement from a blue light in February, as shipments of auto parts related to aftermarket services increased, which offset the fall in auto sales.

Looking ahead, the TIER said, as the International Monetary Fund has raised its forecast of U.S. economic growth to 2.7 percent for 2024 due to strong consumption, Taiwan's exports are expected to also increase.

But, demand from China failed to return to pre-COVID-19 levels, resulting in a supply glut of certain steel, cement and machinery products. Beijing also canceled preferential tariffs on some of Taiwan's petrochemical products, which could further affect Taiwan's old economy sector, the TIER said.