Business sentiment among manufacturers weakens for 3rd straight month

Taipei, Sept. 25 (CNA) Business sentiment in the local manufacturing sector weakened for the third consecutive month in August as the strength of an economic recovery appeared uneven affecting old economy industries, despite robust demand for tech gadgets, the Taiwan Institute of Economic Research (TIER) said Wednesday.

Data compiled by TIER, one of the leading economic think tanks in Taiwan, showed the composite index gauging business sentiment among local manufacturers fell 2.30 points from a month earlier to 96.65 in August.

Meanwhile, the composite index assessing business sentiment in the local service sector also moved lower by 1.14 points from a month earlier to 97.88, marking the second straight month of decline, while the composite index for the construction industry fell sharply by 4.57 points from a month earlier to 107.36 at a time when banks tightened mortgages to home buyers.

TIER said the local tech sector benefited from peak season effects with international brands preparing for the launch of new products, however, a fall in international crude oil prices pushed down petrochemical product prices amid fragile demand.

Citing a survey, TIER said 19.6 percent of the respondents in the manufacturing sector said their business improved in August, down from 21.1 percent in a similar poll conducted in July, while 31.4 percent of them said their operations deteriorated in August, up from 25.1 percent in July.

In addition, 20.6 percent of the respondents expected their business would improve over the next six months, down from 27.6 percent in July, while 22.7 percent of them anticipated their operation would deteriorate over the next six months, up from 21.7 percent in July, TIER said.

Speaking with reporters, TIER Economic Forecasting Center Director Gordon Sun (孫明德) said that Taiwan's exports stayed strong in the first eight months of this year and such a trend was expected to continue, despite business sentiment in the manufacturing sector weakening in recent months.

In the eight months, the country's exports rose 10.94 percent from a year earlier to a high of US$308.57 billion on the back of solid global demand for emerging technologies such as artificial intelligence (AI) applications and high-performance computing (HPC) devices.

Sun said he believed old economy industries such as base metal and machinery will play catch up with their tech counterparts, in particular, after the U.S. Federal Reserve kicked off a rate cut cycle that led other major central banks to follow suit, which is expected to stimulate investments and consumption.

The Fed cut its key interest rates by 50 basis points last week and hinted additional 50 basis point cut will come later this year.

"Spring will come but just be late," Sun said.

Looking ahead, TIER President Chang Chien-yi (張建一) said AI has become the mainstream of the industrial sector worldwide and such a trend is positive to contract chipmaker Taiwan Semiconductor Manufacturing Co. (TSMC), which is believed to be the major supplier of pure wafer foundry services to AI chip designers such as Nvidia Corp.

Chang said he expected Taiwan's economy will continue to move ahead over the next decade at least despite facing cyclical ups and downs in global fundamentals.

As for the local service sector, TIER said the local tourism industry continued to suffer a shortage of manpower, while investors turned cautious about the stock market after volatility in August.

Commenting on the local property market, Liu Pei-chen (劉佩真), a researcher at TIER's Taiwan Industry Economics Database, said banks' tightening of loans to home buyers at the behest of the central bank had boosted caution about the home market.

In addition, the effects of the Ghost Month in the Chinese calendar also affected the home market, Liu said. This year, the Ghost month fell during Aug. 4 - Sept. 2, when many consumers here tended not to buy big ticket items such as homes and cars to avoid bad luck.

Liu said a move by the central bank to introduce the seventh round of selective credit control for the home market last week is expected to deal a blow to home buying interest in the future.