Goodbye to 'May and June Slump'! Taiwan Institute of Economic Research Report: Manufacturing Climate Hits 4-Year High, AI Construction Boom Boosts This Industry

While global AI-related stocks have recently entered a consolidation phase, Taiwan's AI supply chain export momentum remains strong. The Taiwan Institute of Economic Research (TIER) released its latest business climate survey today (25th), with Director Sun Ming-De of the Economic Forecasting Center highlighting that the AI wave has undergone two phases of development since 2024, driving Taiwan's exports to the U.S. to grow fivefold. The current period marks a transition between old and new product cycles, and whether next-generation products gain market acceptance will be a key factor influencing Taiwan's economic performance in the second half of 2024 and into 2025.

According to TIER data, driven by demand for AI, high-performance computing (HPC), and cloud services, Taiwan's exports in July marked 33 consecutive months of year-on-year growth, rising 32.9% compared to the same month last year. Electronic components exports surged 50.5%, while information and communications technology (ICT) and audiovisual products rose 29.5%. From January to July 2024, these two categories accounted for 78.7% of total exports, continuing to serve as the backbone of Taiwan's export economy.

How has AI-related export performance evolved? India and Australia are now joining the growth trend.

Sun Ming-De noted that export data for the first half of 2024 was "really quite good." After ICT and audiovisual products grew over 100% in the first seven months of 2023, they expanded by more than 70% in the same period of 2024. The latest data shows not only a broader range of exported products but also a diversification of markets beyond the U.S., with rising demand in India and Australia.

He further pointed out that the growth rate of electronic components exports in July is gradually catching up to that of ICT and audiovisual products. India's market growth has been notably driven by Apple's new product inventory buildup. As AI advances, Taiwan's supply chain exports are expanding beyond servers to include memory, power management chips, high-speed transmission components, power semiconductors, and silicon photonics.

Manufacturing climate hits over 4-year high; companies bid farewell to the 'May and June Slump'.

Supported by AI, high-performance computing, and new smartphone inventory buildup, the manufacturing sector's Business Climate Index rose to 101.09 points in July, up 2.48 points from the revised 98.61 points in June—the highest level since March 2022. The survey revealed that 31.3% of manufacturers viewed July's business climate as "favorable," a significant increase of 11.1 percentage points from the previous month. Meanwhile, the proportion viewing it as "unfavorable" dropped to 14.6%.

TIER assistant researcher Fang Jun-De explained that the sharp rise in positive sentiment among manufacturers is primarily due to the industry entering its peak shipment season, effectively overcoming the traditional "May and June Slump." In addition to the robust performance of the semiconductor supply chain, the chemical industry has benefited from rising oil prices, downstream customers replenishing inventories, and gradual recovery of production capacity, indicating a simultaneous improvement in both tech and certain traditional sectors.

AI construction boom boosts construction sector; commercial real estate transactions heat up.

The AI boom is also driving private investment and tech facility construction in Taiwan. The construction sector's Business Climate Index rose to 110.55 points in July, up 2.96 points from June and marking the fourth consecutive month of growth. Despite ongoing challenges such as excavation costs, material prices, and labor shortages, continued construction of tech offices, industrial park expansions, and public infrastructure projects are supporting the construction sector's momentum.

Sun Ming-De noted that since the AI demand surge, private investment in Taiwan has significantly increased, fueling a rise in commercial real estate transactions. The transaction value in the first half of 2024 has nearly reached the total for the entire previous year. However, the general residential market remains affected by credit controls. Although the number of building transfers in Taiwan's six major cities rose 12% month-on-month in July, overall transaction volumes remain at low levels.

AI growth temporarily slows; Sun Ming-De highlights the next key indicator.

In contrast to the strengthening manufacturing and construction sectors, the service sector's Business Climate Index fell to 98.20 points in July, down 1.29 points from the previous month, ending a four-month upward trend. TIER analysis indicated that while retail benefited from summer travel, high-temperature consumption, and typhoon preparedness inventory buildup, the securities industry was dragged down by falling stock prices and shrinking trading volumes, negatively impacting the overall service sector.

Sun Ming-De explained that AI-related products typically undergo a product cycle transition every six months. The recent flattening of growth rates, along with weaker performance in related U.S. and Taiwan stocks, reflects this transitional phase. He emphasized: "The key now is whether the next generation of products will gain market acceptance," which will directly impact Taiwan's export performance and economic growth in the second half of 2024 and into 2025.