Taiwan's manufacturing activity expands at fastest pace in 5 years

Taipei, Sept. 1 (CNA) Riding the wave of global AI development, Taiwan's manufacturing activity remained in expansion mode for the 11th consecutive month and expanded at the fastest pace in five years, the Chung-Hua Institution for Economic Research (CIER) said Tuesday.

Citing data, CIER, one of the leading economic think tanks in Taiwan, said the August purchasing managers' index (PMI) in the manufacturing sector rose 1.0 from a month earlier to 62.5, the highest level since July 2021, when the index stood at 65.2.

The expansion reflected strong global demand for gadgets such as AI servers, high-end memory chips and high-speed optical communications devices, CIER said.

In contrast, the non-manufacturing index (NMI) in the service sector fell 1.7 from a month earlier to 55.6 in August but remained in expansion mode.

PMI and NMI readings above 50 indicate expansion, while those below 50 show contraction.

Among the five major factors in the August PMI, the subindexes for new orders, production and employment moved higher by 3.2, 2.5 and 3.0, from a month earlier to 66.5, 65.2 and 56.0. The three were all in expansion.

However, the subindexes for supplier deliveries and inventories moved lower by 1.0 and 2.9, respectively, from a month earlier to 66.6 and 58.2 in August but both were in expansion.

The subindex on the business outlook about the next six months rose 0.7 from a month earlier to 65.2, marking the eighth straight month that the index stood above 60.

CIER said the pace of inventory expansion slowed down for the third consecutive month in August due to a lack of raw materials, leading to slowed distribution and prolonged delivery times, while higher key raw material prices also affected inventories.

Speaking with reporters, CIER President Lien Hsien-ming (連賢明) said the improving August PMI showed Taiwan's strong export performance in the AI boom, though higher raw material prices amid tight supply chains have created bottlenecks in certain areas of production.

The increase in mature memory chip prices has made consumer electronics products, including PCs and smartphones, more expensive, so it remains to be seen whether the price hikes will affect end-user demand, CIER said.

In August, the subindexes for four of the six major industries in the August PMI -- the chemical and biotech industry, the electronics and optoelectronics industry, the basic raw material industry and the electricity and machinery equipment industry -- improved, CIER added.

The remaining two -- the transportation equipment industry and the food and textile industry -- saw manufacturing activity weaken in August, but were still in expansion, CIER said.

Commenting on the falling NMI in August, Lien said the pace of expansion in the service sector showed signs of slowing amid recent volatility in the stock market, making many investors cautious.

However, Lien noted that the NMI remaining in expansion territory demonstrated that the local economy remains sound.