Manufacturing sentiment rises to a 55-month high

Business sentiment in the export-oriented manufacturing sector rose to its highest level in 55 months last month, buoyed by the global artificial intelligence (AI) boom, the Taiwan Institute of Economic Research (TIER, 台經院) said yesterday, while warning of potential risks ahead.

The manufacturing sector’s composite index, which gauges business sentiment among local manufacturers, rose 0.50 points from August to 101.39, its highest level since February 2022, data compiled by TIER showed.

The composite index for the service sector fell 3.15 points month-on-month to 92.65, while the index for the construction industry rebounded from a previous decline, rising 2.81 points from August to 110.42, the data showed.

Taiwan Institute of Economic Research’s Economic Forecasting Center director Gordon Sun is pictured in an undated photograph.

Photo: Lin Chin-hua, Taipei Times

TIER, one of Taiwan’s leading economic think tanks, said that manufacturers continued to benefit from massive global investments in AI infrastructure and inventory buildup by international brands ahead of new product launches, including the iPhone 18 series and iPhone Duo.

A surge in international crude oil prices also pushed up the prices of petrochemical products, while the completion of annual maintenance by some non-tech industries helped boost production, the institute said.

In TIER’s survey last month, 26.8 percent of manufacturing respondents said business conditions had improved that month, up from 19.5 percent in August, while 20.3 percent said conditions had worsened, down from 25.6 percent a month earlier.

However, expectations for the next six months weakened.

In the survey, 24.0 percent of respondents expected business conditions to improve, down 3.1 percentage points from August, while 19.8 percent expected them to deteriorate, up 1.8 percentage points.

Gordon Sun (孫明德), director of TIER’s Economic Forecasting Center, said that despite support from the AI boom and the peak season for consumer electronics, Taiwan’s economy still faced risks, including the possibility of the US Federal Reserve taking a more hawkish stance to curb inflation.

A Fed rate hike would likely strengthen the US dollar against the Taiwan dollar, potentially prompting foreign institutional investors to pull funds out of Taiwan and causing volatility in local financial markets, Sun said.

Military conflicts in the Middle East could push crude oil prices higher and prompt upstream petrochemical suppliers to raise prices, although such increases could weaken demand from downstream buyers, Sun said.

Sun also noted concerns about a possible slowdown in AI development, which have recently weighed on global stock markets.

In the service sector, recent financial market volatility has made businesses more cautious, although the food and beverage industry continued to benefit from rising demand, TIER said.

In construction, easing of selective credit controls in the middle of last month by Taiwan’s central bank supported the property market, but the industry still faces a large inventory of unsold homes, the think tank said.