Taiwan economic gauge flashes 'red' for 4th straight month

Taipei, April 27 (CNA) Taiwan's economic monitoring indicator flashed a red light for the fourth straight month in March, with the composite score dropping from the four-year high it reached last month, the National Development Council (NDC) said Monday.

The composite index dropped two points from a month earlier to 39, remaining in the red zone that signals an overheating economy. The NDC uses a five-color system to track the economy.

A red light (38-45 points) signals overheating; yellow-red (32-37) indicates a warming economy; green (23-31) suggests stable growth; yellow-blue (17-22) reflects sluggishness; and blue (9-16) points to contraction.

Among the nine components that make up the index, the subindex tracking overtime hours in the industrial and service sectors dropped one point into yellow-red territory, as did the subindex for business sentiment among manufacturers and industrial production, which fell to yellow-blue.

The other seven components remained unchanged.

Chen Mei-chu (陳美菊), head of the NDC's Department of Economic Development, said Taiwan's economic outlook continued to be buoyed by strong demand for AI-related products.

As AI supply chains mostly utilize air transport, they have limited exposure to the ongoing conflict in the Middle East, Chen said, adding that the outlook for the second quarter remains "stable."

As for whether Taiwan's economy is overheating, meaning growing at an unsustainable rate, Chen said it was not a major concern, as performance varied across different industries.

Chen cited traditional manufacturing as a sector which faces uncertainty from price shocks related to events in the Middle East, while adding that she remained "cautiously optimistic" that the economy would continue to flash red in April.

Risks of an overheating economy

According to the Central Bank of Ireland, an overheating economy can cause prices and wages to "spiral" upward. Over time, these higher costs can erode exporters' competitiveness, leading to a reduction in trade and job losses.

In such conditions, consumers and businesses can also be too optimistic about their future income prospects, leading them to take on too much debt.

Last week, the Taiwan Institute of Economic Research (TIER) raised its forecast for Taiwan's GDP growth in 2026 to 7.56 percent, up 3.51 percentage points from its January forecast, citing strong global demand for AI as a key driver of exports and investment.