Taipei: 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.
According to Focus Taiwan, the last red light flashed by Taiwan's manufacturing sector came in April 2021. 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.
In the July index, the sub-index for the business climate rose 0.86 from June, marking 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. However, the sub-index for costs moved down by 0.05.
Citing a survey, TIER reported that 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. Additionally, 31.06 percent of the respondents indicated their operations in July flashed a yellow-red light, compared with 29.24 percent in June, while only 0.28 percent reported a "blue light," little changed from a month earlier.
During the month, the electronics component industry continued to flash a red light due to higher semiconductor sales fueled by strong AI demand. The computer and optoelectronics industry also flashed another red light because of robust demand for AI infrastructure equipment and preparations by consumer electronics brands for new product launches.
In the old economy sector, the machinery industry flashed a red light in July, an upgrade from a yellow-red light in June, driven by semiconductor firms purchasing machinery necessary to expand capacity. The plastics/rubber industry also transitioned to a red light in July, compared with a yellow-red light in June, as its downstream clients rebuilt their inventories, according to TIER.
Despite the higher July index, the figure was still at the low end of a red light score, which needs to top 18.5. TIER noted the importance of monitoring whether a red light will continue to flash in the second half of this year, given the relatively high base of comparison over the same period a year earlier.