Taiwan's manufacturing sector flashes 1st 'red light' in over 5 years

Taipei, Aug. 31 (CNA) Riding the wave of robust global demand for AI-related products, Taiwan's export-oriented manufacturing sector flashed its first "red light" in over five years in July, indicating a booming or even overheating sector.

The composite index, which measures the manufacturing sector's overall health, rose 2.03 points from a month earlier to 18.57 in July to flash a red light, up from a "yellow-red" light, data compiled by the Taiwan Institute of Economic Research (TIER) showed.

The last red light flashed by Taiwan's manufacturing sector came in April 2021, according to the TIER.

The think tank uses a five-color system to assess activity: "red" for booming or overheating, "yellow-red" for fast growth, "green" for stable growth, "yellow-blue" for sluggish growth and "blue" for contraction.

According to the think tank, many tech firms in Taiwan have benefited from a boom in emerging technologies, clients building up inventories ahead of the launch of new consumer electronics devices later in the year, and a surging stock market.

In the July index, the sub-index for the business climate rose 0.86 from June, the largest increase among the five factors that make up the composite index, while the sub-indexes for demand, raw material purchases and sales also rose by 0.71, 0.47 and 0.04, respectively.

The sub-index for costs, however, moved down by 0.05.

Citing a survey, TIER said 45.85 percent of respondents in the manufacturing sector said their businesses flashed a red light in July, significantly up from 26.25 percent in a similar poll in June.

In addition, 31.06 percent of the respondents said their operations in July flashed a yellow-red light, compared with 29.24 percent in June, while only 0.28 percent said their businesses in July flashed a "blue light", little changed from a month earlier, the TIER said.

During the month, the electronics component industry continued to flash a red light because of higher semiconductor sales fueled by strong AI demand.

The computer and optoelectronics industry flashed another red light on the back of robust demand for AI infrastructure equipment and preparations by consumer electronics brands to launch new products.

In the old economy sector, the machinery industry flashed a red light in July, an upgrade from a yellow-red light in June, as semiconductor firms continued to buy machinery needed to expand capacity.

The plastics/rubber industry also flashed a red light in July, compared with a yellow-red light in June, as its downstream clients rebuilt their inventories, the TIER said.

Despite the higher July index, the figure was still at the low end of a red light score, which needs to top 18.5. The TIER said it was worth watching whether a red light will continue to flash in the second half of this year when facing a relatively high base of comparison over the same period a year earlier.