Manufacturing climate stable in April amid geopolitical risks

Taipei, June 1 (CNA) Taiwan's manufacturing sector remained in the "green" zone for a second consecutive month in April, although its business climate score edged lower as tensions in the Middle East weighed on some indicators, the Taiwan Institute of Economic Research (TIER) said Monday.

TIER said in a statement that robust demand related to artificial intelligence continued to support the manufacturing sector, but early inventory purchases by some firms in response to the Middle East conflict affected trade-related indicators and contributed to a slight decline in the sector's business climate signal value.

The composite index for the manufacturing sector fell 0.97 points from a revised 14.63 in March to 13.66 in April. The overall signal nevertheless remained green, indicating stable growth.

According to TIER, a sharp increase in export prices helped boost the pricing component of the index in April. However, year-on-year growth in exports, imports, export orders and industrial production all slowed from March, leading to a modest decline in the overall score.

TIER said sustained demand for AI, high-performance computing and cloud services continued to drive growth in Taiwan's electronics and machinery industries, providing key support for the manufacturing sector.

In contrast, some traditional industries faced pressure from volatile energy prices, uneven recovery in end-market demand and intensifying international competition.

Among individual sectors, the plastics and rubber products industry improved from a green light to a yellow-red light, indicating rapid growth, as rising international oil prices pushed up product prices and encouraged customers to increase purchases.

Meanwhile, the electronic components industry slipped from a red signal indicating overheating to yellow-red despite continued double-digit growth in exports, imports, export orders and production.

TIER said the slowdown reflected inventory adjustments by some end customers, which caused annual growth rates to moderate from March.

Looking ahead, TIER cited forecasts by hi-tech market research firm TrendForce showing that capital expenditure by major global cloud service providers is expected to maintain double-digit growth through 2026.

Continued demand for AI servers and data centers is forecast to support shipments of advanced chips, advanced packaging and high-speed switches, benefiting Taiwan's electronics and machinery sectors, it said.

However, the institute warned that geopolitical risks in the Middle East remain unresolved and 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, it added.

TIER said Taiwan's manufacturing sector is expected to remain stable in the near term, supported by ongoing demand from the AI supply chain, but added that developments in geopolitics, energy prices and end-market demand will remain key factors affecting the industry's outlook.