Manufacturing sector sees fast growth but uncertainty increases

Taiwan's manufacturing sector remained in fast growth mode in August as an index gauging the sector's business climate flashed a "yellow-red" light for the fourth consecutive month, the Taiwan Institute of Economic Research (TIER) said Friday.

However, the index fell, indicating uncertainty caused by lingering concerns over the COVID-19 pandemic, a lack of raw materials used in production as well as a shortage of shipping services worldwide, according to TIER.

The composite index for the local manufacturing sector moved lower by 0.51 points from a month earlier to 16.19, while remaining in the yellow-red light category range of between 16 and 18.5, according to data compiled by TIER, one of the leading think tanks in Taiwan.

So far this year, the local manufacturing sector has flashed six yellow-red lights with a green light flashing in February and a red light in April, according to TIER.

TIER uses a five-color system with a green light reflecting stable growth, a yellow-red light indicating fast growth, and a red light indicating overheating. A blue light indicates contraction, while a yellow-blue light signals sluggish growth.

TIER said the August index fell to the lower end of the yellow-red light category as the coronavirus continued to spread and a shortage in production raw materials and shipping services developed, while fears over a possible move by the U.S. Federal Reserve to downsize its asset purchases also hurt manufacturers' sentiment.

The think tank said the Fed's likely tightening of its monetary policy also prompted investors to dump tech stocks on the local main board, which sent the sub-index on the general business climate factor lower for the month.

Among the five factors in the index, the sub-indexes on demand, general business climate, and pricing moved lower by 0.51, 0.17 and 0.07, respectively, from a month earlier in August, while the sub-indexes on purchases of raw materials, and costs moved higher by 0.23 and 0.01, respectively, TIER said.

Citing a survey, TIER said 7.11 percent of the respondents in the manufacturing sector said their business flashed a blue light in August, up from 2.94 percent in a similar poll in July; 6.29 percent said their business flashed a yellow-blue light in the month, up from 5.46 percent last month; while 27.77 percent said their business flashed a green light in August, up from 23.62 percent a month earlier.

TIER said 40.62 percent of the respondents said their business flashed a yellow-red light in August, down from 47.13 percent in July, and 18.21 percent said their business saw a red light in the month, down from 20.85 percent.

In August, the local electronics component industry, including semiconductor suppliers, continued to flash a yellow-red light on the back of strong demand for 5G applications and automotive electronics. In addition, the efforts made by international smartphone brands to unveil new models also helped the industry, TIER said.

The think tank said the base metal industry flashed another red light in August, when the United States and European countries were keen to push for infrastructure projects.

The think tank added the machinery industry continued to flash a yellow-red light in August as rising demand led many companies to expand production by installing more equipment.

Looking ahead, TIER said, the government will issue NT$5,000 (US$179.59) in spending vouchers to eligible residents to boost consumption, which is expected to stabilize domestic demand-oriented industries.

However, the escalating pandemic in Southeast Asia, power rationing in China, and the pressing debt problems faced by Chinese property developer Evergrande could send ripples through the world economy, TIER said.

Source: Focus Taiwan News Channel