Taiwan’s manufacturing sector continues to expand, but the pace has clearly slowed. The Chung-Hua Institution for Economic Research (CIER) reported on the 2nd that the seasonally adjusted October manufacturing Purchasing Managers’ Index (PMI) fell 0.9 percentage points from September’s 63.4% to 62.5%. Although the index has now stayed above the 50% expansion threshold for 13 consecutive months, the pace of expansion eased from the previous month. The Non-Manufacturing Index (NMI) for the same month also slipped 1.5 percentage points to 55.4%, marking 20 consecutive months of expansion.
CIER President Lien Hsien-ming said the modest decline in both indexes reflects that the economy remains on an expansion track, with only momentum cooling. The main cause is difficulty obtaining key raw materials and components. He explained that AI servers require a wide variety of parts, and a delay in the supply of any single one holds up shipment of the entire unit. The supply chain bottleneck is no longer limited to memory shortages—IC substrates are also experiencing tight supply.
Looking at the sub-indexes, demand in the manufacturing sector has not weakened. The new orders index, a leading indicator, fell another 0.4 percentage points to 63.2% but remained firmly above the 60% expansion level. The unfinished orders index dropped to 53.9%, the slowest pace of expansion since January 2026. The supplier delivery times index and the raw material prices index both stayed at high levels around 70%, indicating that manufacturers, while enjoying brisk order intake, are facing dual pressure from lengthening lead times and rising costs.
CIER also noted that the overall manufacturing customers’ inventory index has been elevated for two consecutive months, reflecting a situation in which shortages of key materials coexist with accumulation of some inventories. Whether the supply of key materials can improve and whether orders in hand can be shipped smoothly will be the key factors shaping the momentum of manufacturing expansion in 2027.
All six major industries recorded PMI expansion in October on an unadjusted basis. Ranked by pace of expansion, they were: Electric Power and Machinery Equipment at 64.5%, Electronics and Optical at 60.0%, Transportation Equipment at 56.3%, Chemical, Biotechnology and Medical at 55.1%, Basic Raw Materials at 54.9%, and Food and Textiles at 54.8%. Among them, the Electronics and Optical PMI fell another 2.6 percentage points, the slowest pace of expansion since March 2026, with new order expansion markedly slower than in the first half of the year. Shortages of key materials, rising costs and mismatches between long and short lead-time components continued to disrupt order delivery.
All six industries reported expansion in their outlook for the next six months, in the following order: Electric Power and Machinery Equipment at 75%, Chemical, Biotechnology and Medical at 64.1%, Electronics and Optical at 61.7%, Basic Raw Materials at 60.5%, Transportation Equipment at 52.6%, and Food and Textiles at 52%.
On the non-manufacturing side, the fourth-quarter peak domestic demand season is gradually getting under way, with business activity continuing to expand in travel booking, accommodation and food service, retail, and transportation and warehousing. However, business activity cooled in finance and insurance, wholesale, and information and communications, slowing the pace of NMI expansion. With procurement prices still high, respondents reported that their operational concerns centered mainly on cost pressure, service pricing and financial market volatility, and the pace of expansion in the six-month outlook also slowed.
Asked whether the economy has peaked and is reversing, Lien said supply chain bottlenecks are not unique to Taiwan and that other countries face similar problems. Although Taiwan’s manufacturing PMI expansion has slowed, the index remains at a high level of 62.5%. “This is still quite a large expansion, just at a slower pace,” he said, adding that at this stage the slowdown should not be read directly as a reversal in the business cycle. He also noted that the economy cannot be expected to sail smoothly all the way. In the past, when the production base was low, high growth was relatively easy; as output continues to expand by 20% to 30% each year, maintaining high growth becomes more difficult as the base rises, and the trend ahead bears watching.
CIER Associate Researcher Chen Hsin-hui added that the PMI reading remains at a fairly high level, but for manufacturers the key question now is whether orders in hand can be produced and delivered smoothly and thereby converted into cash flow. CIER Vice President Chen Hsin-hung, citing Google’s recent earnings report and its search business falling short of expectations, noted that even major cloud service providers (CSPs) face the challenge of shifting consumer usage habits after adopting AI. As the AI wave advances, adjustments to corporate operating models, changes in consumer behavior and supply chain bottlenecks may all cause fluctuations in industry development. “Everyone should not expect things to keep moving smoothly downward—ups and downs are reasonable,” he said.
Looking ahead, CIER believes that with high-end demand still supported, how well companies can secure stable supplies of key materials, ensure orders are delivered on schedule, and reasonably pass on higher costs in product prices to preserve gross margins will shape the momentum of manufacturing expansion in 2027.
Note: For the PMI and NMI, 50% is the threshold between expansion and contraction; above 50% indicates expansion and below 50% indicates contraction.