Taiwan’s manufacturing activity accelerated last month, as robust demand for artificial intelligence (AI) applications and semiconductors continued to lift orders and production despite persistent supply constraints.
The Taiwan manufacturing purchasing managers’ index (PMI) climbed 0.8 points from the previous month to 61.5, marking the 10th consecutive month of expansion and the highest reading since September 2021, a report released yesterday by the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) showed.
Among the major components, new orders and production stayed firmly in expansion territory at 63.3 and 62.7 respectively, while supplier delivery times lengthened further.
Employment and inventories also continued to expand, although at a slower pace, the report showed.
The rapid development of AI applications is continuing to reshape global industrial supply chains, giving companies with critical technologies and production capacity greater pricing power, CIER president Lien Hsien-ming (連賢明) said.
“Geopolitical uncertainty and strong AI demand have prompted suppliers of critical components and materials to prioritize high-value customers and long-term partners who can accept price adjustments amid limited production capacity,” he said.
Despite improving orders and production momentum, manufacturers continue to face challenges from shortages of key materials, rising input costs and prolonged delivery times, the Taipei-based institute said.
The pressure is particularly evident in the electronics and optical equipment sector, where companies expect procurement prices to rise 24.4 percent this year, significantly exceeding the projected 15.2 percent increase in average selling prices, it said.
The widening gap between the projected increases in procurement prices and selling prices suggests manufacturers might need to absorb a larger portion of rising expenses, potentially squeezing profit margins despite resilient demand, the institute said.
The electronics and optical equipment industry remained the biggest contributor to manufacturing expansion, although shortages of critical components could affect shipment schedules in the coming months, it said.
Competition across the global AI supply chain is intensifying as international customers increasingly seek second-source suppliers to reduce supply risks, CIER vice president Chen Shin-horng (陳信宏) said.
While the US is accelerating efforts to develop domestic AI supply chains, the growing adoption of lower-cost Chinese AI models among some US start-ups highlights a more competitive market landscape, he said.
These developments could alter investor expectations for AI-related companies as more alternatives emerge and market participants reassess the sustainability and pace of future growth, Chen added.
Taiwan’s nonmanufacturing sector remained in expansion territory, although its index fell 2.6 points from June to 57.3, the institute said.
The drop was mainly driven by volatility in the local stock market, which prompted some service providers to adopt a more cautious view of the economic outlook, Lien said.
Concerns that a weaker wealth effect could reduce consumer spending on high-value purchases, dining, travel and real estate have weighed on business sentiment, he said.
Nevertheless, overall business conditions remained relatively strong, suggesting resilience in Taiwan’s broader economy, he added.