TAIPEI (Taiwan News) — Taiwan’s manufacturing business climate index dropped to 85.83 in May, its lowest level in two and a half years, marking the fourth straight month of decline, the Taiwan Institute of Economic Research reported Tuesday.
The index, a key barometer of the sector’s health, tracks indicators such as production activity, capital investment, employment, and order volume to assess overall performance and forecast future trends, per MacroMicro.
Despite strong demand in emerging areas such as artificial intelligence, high-performance computing, and cloud services, the semiconductor foundry and testing sectors reported slight revenue declines in May. The dip was attributed to customers front-loading inventory purchases earlier than expected.
Adding to the pressure, the Taiwan dollar’s appreciation has eroded exporters’ earnings and made locally manufactured goods less competitive abroad.
Manufacturers also continue to face sluggish demand for traditional products and fierce pricing competition from lower-cost foreign producers, further dampening business confidence.
Geopolitical factors are compounding economic uncertainty. Escalating tensions in the Middle East have sparked concerns over energy supply chains, shipping disruptions, and broader market volatility. Ongoing trade negotiations between Taiwan, the US, and other partners also remain unresolved, adding to the uncertain outlook.
Institute Director Sun Ming-te (孫明德) said most manufacturers remain cautious about the next six months but noted recent signs of optimism, including anticipated progress on Taiwan-US tariff talks, easing exchange rate volatility, and signs of a possible ceasefire between Iran and Israel.
Institute President Chang Chien-yi (張建一) echoed this cautiously optimistic tone, citing falling global oil prices and signs of de-escalation in the Middle East. He warned, however, that while the 90-day US tariff exemption period ends July 9, any breakthrough on semiconductor tariffs could take longer—an issue of particular importance to Taiwan’s economy.
Chang said the current round of inventory restocking is likely to continue through at least June. After that, the trajectory of global economic and trade developments will play a critical role in shaping the industry’s outlook.
While AI-related sectors continue to bolster Taiwan’s export momentum, the performance gap between high-tech and traditional industries remains wide. Looking ahead, unresolved tariff issues, rising housing supply, cross-strait tensions, and ongoing geopolitical conflict are expected to weigh on growth in the second half of the year.
