The National Development Council (NDC) last week reported that Taiwan’s business monitoring indicators remained “blue” for a seventh straight month in May, pointing at a continued economic slowdown, while the index of leading indicators fell for a second consecutive month, adding to worries about persistent weakness in the nation’s export-reliant economy.
The index of leading indicators seeks to forecast the economic landscape in the next six months. After rising for five consecutive months from November last year to March, the trend-adjusted index failed to maintain its upward momentum and started to drop in April. The NDC’s data showed that the index dropped 0.28 percent in May, following a 0.19 percent fall the previous month.
Among the index’s seven components, the reading on imports of semiconductor equipment decreased 0.61 percent monthly in May, following a decline of 0.59 percent the previous month, and the gauge for the floor area of building permits dropped 0.25 percent after a fall of 0.20 percent in April, while export orders also weighed on the index, with declines widening from 0.05 percent to 0.14 percent.
Past studies on the relationship between the index of leading indicators and the annual GDP growth rate have shown a positive correlation between the two, as they tended to peak or bottom out almost simultaneously. As the leading indicators are still falling, it means Taiwan’s economy is not out of the woods yet.
Furthermore, a closer look at the NDC’s data on business monitoring indicators shows that Taiwan’s economic situation remains exposed to short-term downside risks, as inventory destocking in the supply chain is ongoing, while spillover effects have started to affect corporate investment.
For instance, among the nine components that make up the business monitoring indicators, the reading on the manufacturing sector’s business climate, which is used to gauge the economy’s direction in the medium to long term, fell for a second consecutive month in May. The NDC attributed the slowdown to weak growth momentum around the world, which resulted in a longer-than-expected inventory adjustment in the supply chain.
As a result, local manufacturers of consumer electronics continued to report sluggish shipments and steelmakers remained conservative in their outlook, while the prices of petrochemical products, and plastic and rubber goods continued to fall, the NDC’s data showed.
Even though the data on business monitoring indicators revealed that the narrow M1B money supply increased 3.4 percent in May following a 2.7 percent rise the previous month, and the stock price gauge decreased 1.5 percent compared with a decline of 7.5 percent in April, those improvements were driven by near-term factors, such as US chipmaker Nvidia Corp’s blowout revenue forecast in late May, which triggered artificial intelligence (AI) hype around the world and drove foreign fund inflows into AI-related stocks in the local equity market.
The NDC data showed relative resilience in Taiwan’s household consumption and domestic labor market on the back of post-COVID-19 pandemic consumption and the government’s incentive measures.
However, external headwinds remain ahead, such as the implications of central banks’ interest rate hikes and geopolitical confrontations.
In a nutshell, it would be unlikely for the business monitoring indicators to show significant upward movement in the short term, until a definitive turnaround materializes, and the “blue” signal is likely to linger for a while.
In the US’ National Security Strategy (NSS) report released last month, US President Donald Trump offered his interpretation of the Monroe Doctrine. The “Trump Corollary,” presented on page 15, is a distinctly aggressive rebranding of the more than 200-year-old foreign policy position. Beyond reasserting the sovereignty of the western hemisphere against foreign intervention, the document centers on energy and strategic assets, and attempts to redraw the map of the geopolitical landscape more broadly. It is clear that Trump no longer sees the western hemisphere as a peaceful backyard, but rather as the frontier of a new Cold War. In particular,
When it became clear that the world was entering a new era with a radical change in the US’ global stance in US President Donald Trump’s second term, many in Taiwan were concerned about what this meant for the nation’s defense against China. Instability and disruption are dangerous. Chaos introduces unknowns. There was a sense that the Chinese Nationalist Party (KMT) might have a point with its tendency not to trust the US. The world order is certainly changing, but concerns about the implications for Taiwan of this disruption left many blind to how the same forces might also weaken
As the new year dawns, Taiwan faces a range of external uncertainties that could impact the safety and prosperity of its people and reverberate in its politics. Here are a few key questions that could spill over into Taiwan in the year ahead. WILL THE AI BUBBLE POP? The global AI boom supported Taiwan’s significant economic expansion in 2025. Taiwan’s economy grew over 7 percent and set records for exports, imports, and trade surplus. There is a brewing debate among investors about whether the AI boom will carry forward into 2026. Skeptics warn that AI-led global equity markets are overvalued and overleveraged
As the Chinese People’s Liberation Army (PLA) races toward its 2027 modernization goals, most analysts fixate on ship counts, missile ranges and artificial intelligence. Those metrics matter — but they obscure a deeper vulnerability. The true future of the PLA, and by extension Taiwan’s security, might hinge less on hardware than on whether the Chinese Communist Party (CCP) can preserve ideological loyalty inside its own armed forces. Iran’s 1979 revolution demonstrated how even a technologically advanced military can collapse when the social environment surrounding it shifts. That lesson has renewed relevance as fresh unrest shakes Iran today — and it should
RSS