Taiwan’s manufacturing activity last month accelerated to its fastest pace in nearly five years, driven by sustained demand for artificial intelligence (AI)-related products, although economists warned that rising inventories in some sectors might signal emerging imbalances beneath the economy’s robust expansion, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday.
The manufacturing purchasing managers’ index (PMI) rose 1.1 points to 61.4 from 60.3 in April, marking the eighth consecutive month of expansion above 50 and the highest reading since September 2021.
“The latest PMI data indicate that Taiwan’s economy remains in a strong expansion phase,” CIER president Lien Hsien-ming (連賢明) told a news conference in Taipei.
Photo: CNA
Demand for electronics and components linked to AI applications remains solid, supporting exports and sustaining growth momentum, he said.
Export demand is likely to stay firm through the year, Lien added.
Still, overbooking in some sectors amid record-high inventory levels could be concerning, he said.
The manufacturing inventories index rose 5.3 points to 65.7, a new high, suggesting firms are aggressively building stock ahead of expected demand, he said.
While rising inventories can reflect confidence in business conditions, elevated customer inventories have historically served as an early warning signal.
During the COVID-19 pandemic, some customers doubled their orders amid supply-chain disruptions, only to cancel them later and trigger a prolonged inventory correction cycle, Lien said.
“The shift toward excessively high customer inventories is something worth monitoring,” Supply Management Institute, Taiwan (中華採購與供應協會) adviser Jerry Pai (白宗城) said.
However, it is still too early to conclude that demand is turning, he added.
The inventory picture also varies significantly across industries, CIER researcher Chen Shin-hui (陳馨蕙) said.
Chemical manufacturers are already undergoing inventory adjustments after earlier front-loaded orders driven by higher oil prices and supply concerns, she said.
By contrast, orders in the electronics and optical products sector continue to expand steadily, Chen said.
Manufacturers remain broadly optimistic, as the six-month outlook index rose 2.9 points to 66.8, its strongest level since June 2021, with confidence particularly high among electronics and machinery producers, the institute said.
The rise of AI is reshaping Taiwan’s industrial structure beyond the technology sector, with traditional seasonal patterns in electronics manufacturing weakening, as AI-driven investment sustains demand across supply chains, CIER said.
The shift is creating opportunities not only for chipmakers but also for a wider range of traditional industries linked to the AI ecosystem, it said.
While geopolitical tensions and higher energy prices threaten the stability of the global economy, Taiwan’s manufacturing sector continues to benefit from one of the strongest technology investment cycles in decades, it said.
Taiwan’s non-manufacturing index was 58.2 last month, little changed from 58.3 in April, indicating continued expansion in the non-manufacturing sector, the institute said.
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