Introduction:
Taiwan’s economic performance continued to cool in October, according to the latest data released by the National Development Council (NDC). The composite index, which gauges the overall state of Taiwan’s economy, dropped to 32 points, a decrease of two points from September, marking its lowest level since April. The “yellow-red” light indicated by the index signals a moderately hot economy, suggesting that the country’s economy remains in a phase of stable recovery, despite some short-term disruptions.
At a press conference on Wednesday, NDC officials provided insight into the contributing factors behind the downturn and projected a cautiously optimistic outlook for the rest of the year.
Economic Overview: Yellow-Red Light for Taiwan’s Economy
The NDC uses a five-color system to assess Taiwan’s economic health:
- Blue: Economic contraction
- Yellow-blue: Sluggish economic growth
- Green: Stable economic growth
- Yellow-red: Moderately hot economy
- Red: Overheated economy
The October score of 32 places Taiwan in the lower end of the yellow-red range, signaling that the economy is not overheating but remains moderately active.
Key Highlights:
- Economic Cooling: The composite index fell by two points to 32 from 34 in September, reflecting the impact of short-term factors.
- Subindexes’ Performance: Industrial production saw a decline, shifting from a red light to yellow-red. Meanwhile, sales in the manufacturing sector softened from yellow-red to green.
- Old-Economy Recovery: Despite weak performance in certain sectors like petrochemicals, industries such as basic metals and machinery have shown improvement.
Key Factors Behind the Slowdown
Industrial Production and Manufacturing Sales:
According to Chiu Chiu-ying, Director of the NDC’s Department of Economic Development, the dip in industrial production was mainly caused by temporary factors such as typhoon-related disruptions and scheduled maintenance in the petrochemical industry. However, the manufacturing sector showed signs of stability as its performance moved from yellow-red to green, suggesting an overall recovery trajectory.
AI and Tech Exports:
Exports of high-end artificial intelligence (AI) products declined in October, but Chiu expressed optimism, calling it a temporary setback. As new AI applications emerge and tech innovations such as servers are introduced, the tech export sector is expected to rebound.
Performance of the Old Economy Sector
Despite the weak performance of the chemistry and petrochemical industries, basic metals and machinery have seen a recovery. This improvement in the old economy sector indicates that Taiwan’s industrial backbone is starting to stabilize, marking a positive shift compared to September.
Additionally, the upcoming fourth-quarter sales season, including anniversary sales in department stores and the release of new electronic products, is expected to drive economic activity, particularly in retail and consumer goods.
Optimism for Year-End and 2025 Outlook
Looking ahead, the NDC remains cautiously optimistic about Taiwan’s economic prospects for the remainder of 2024. The fourth quarter traditionally sees a surge in sales, and the tech sector’s recovery from temporary setbacks is expected to support growth.
Furthermore, international institutions have predicted that global trade growth will pick up in 2025, which would help stimulate demand for Taiwan’s exports. New technology applications, including high-performance computing and AI, are also seen as key drivers for Taiwan’s export growth.
Challenges on the Horizon:
However, geopolitical tensions and the potential impact of U.S. trade policies, especially with the election of President-elect Donald Trump, remain areas of concern. The NDC has advised that Taiwan should closely monitor these factors as they could affect the country’s economic stability.
Economic Indicators Breakdown
| Subindex | October Performance | Key Factors |
|---|---|---|
| Industrial Production | Yellow-Red → Yellow-Red | Typhoon days and maintenance in petrochemical industry |
| Manufacturing Sector Sales | Yellow-Red → Green | Stabilizing manufacturing sector |
| Exports of High-Tech Products (AI) | Declining | Temporary slowdown due to global market conditions |
| Basic Metal & Machinery Industry | Recovering | Positive growth in old-economy sectors |
| Retail & Consumer Sales | Cautiously Optimistic | Boost from year-end sales and new product launches |
FAQs
1. What does the “yellow-red” light in Taiwan’s economic index indicate?
The yellow-red light signals a moderately hot economy, meaning that while economic activity is stable, it is not overheating, and growth is occurring at a sustainable pace.
2. Why did Taiwan’s economic index drop in October?
The drop in the composite index was due to short-term disruptions, such as weather-related shutdowns and planned maintenance in industries like petrochemicals, which affected industrial production.
3. How is the manufacturing sector performing in Taiwan?
The manufacturing sector showed a positive shift in performance, moving from a yellow-red light to green, indicating improved stability despite previous challenges.
4. What is the outlook for Taiwan’s economy in the fourth quarter of 2024?
Taiwan’s economy is expected to benefit from the traditional sales boost in department stores and consumer electronics as well as a recovery in the technology sector. The outlook for the end of the year remains cautiously optimistic.
5. How could global trade and technology advancements impact Taiwan’s economy in 2025?
With global trade projected to rise in 2025, along with growing demand for AI and high-performance computing, Taiwan’s exports are expected to see growth, supporting economic recovery.
Conclusion:
Taiwan’s economy showed signs of cooling in October, with a moderate slowdown attributed to short-term challenges such as typhoons and production maintenance. However, the country’s economic fundamentals remain strong, and the outlook for the year-end sales season and 2025’s global trade growth is optimistic. Taiwan’s technology sector, particularly AI and high-performance computing, is poised for growth, providing a hopeful trajectory for the country’s economy despite uncertainties in the global market.
