Taiwan manufacturing outlook clouded by geopolitical risks despite March rebound

Taipei, April 30 (CNA) Taiwan's manufacturing sector rebounded in March as domestic demand and AI-driven growth gathered pace, but growing geopolitical risks in the Middle East continued to cast a shadow over the outlook.

In a statement released Thursday, the Taiwan Institute of Economic Research (TIER) said the composite index for the manufacturing sector rose 3.32 points from a revised 10.88 in February to 14.20 in March, the second-highest level in the past year. The increase shifted the sector's signal from "yellow-blue," indicating sluggish growth, to "green," signaling stable conditions, TIER said.

The improvement was driven largely by domestic factors, including a post-Lunar New Year resumption of factory operations, inventory restocking, and stronger demand linked to AI and high-performance computing applications, TIER said.

Export orders, industrial production and imports posted stronger year-on-year growth, supported in part by advance stockpiling by clients seeking to hedge against uncertainties stemming from ongoing conflicts, it said.

The rebound was also reflected in a sharp shift in business signals, with the ratio of firms in contraction falling significantly, and those in stable and expansionary conditions rising, according to TIER.

Among major industries, the chemical sector rebounded sharply, with export orders and production returning to double-digit growth amid recovering demand from the semiconductor industry and increased procurement tied to geopolitical concerns, TIER said.

Meanwhile, the electronics sector continued to benefit from strong demand for AI-related applications, cloud services, and the launch of new laptops, pushing its business climate indicator into "red," the highest level in TIER's five-color system, the statement said.

However, TIER cautioned that international developments remained a key source of uncertainty.

Tensions in the Middle East have heightened concerns over energy supply disruptions, with a potential impact on oil prices, inflation and global manufacturing activity, particularly in Asia, TIER said.

In addition, it said, volatility in financial markets and continued trade policy uncertainties in major economies could weigh on global demand and supply chain stability.

Looking ahead, TIER said sustained investment in AI and semiconductor technologies is expected to support Taiwan's manufacturing sector, but it warned that geopolitical risks and external demand fluctuations will remain critical factors shaping the trajectory.