Taiwan economic indicator warns of 'overheating'

台灣經濟指標發出「過熱」預警

TAIPEI (Taiwan News) — Taiwan’s economy is showing signs of warming and may be approaching overheating, the National Development Council said Monday, citing strong and sustained demand from AI.

The NDC released its November economic indicator, which showed a third consecutive “yellow-red” light, a signal that economic activity is strengthening but nearing a “red” light that indicates overheating. The composite index score rose by two points to 37, just below the lower threshold of the red light range of 38 to 45, per CNA.

Chen Mei-chu (陳美菊), head of the NDC’s Department of Economic Development, said demand for high-performance AI computing remains strong, with cloud service providers sustaining orders for advanced chips and related technologies.

Furthermore, Chu said the fourth quarter is traditionally a peak season for exports and noted a solid performance in industrial production, customs exports, manufacturing sales, and imports of machinery and electrical equipment. Retail and catering were also buoyed by department store anniversary sales and Singles’ Day promotions on Nov. 11.

Of the nine components that make up the composite index, the sub-index for sales in wholesale, retail, and food services turned red, while business sentiment among manufacturers improved to yellow-blue. The remaining seven sub-indices were unchanged.

Chen said manufacturer confidence was supported by strong AI demand as well as China’s more inward-focused economic policies, which have eased price competition and made manufacturers more optimistic about the business outlook. With the composite index nearing the red light threshold, Chen acknowledged there is a possibility the economy could overheat, posing a potential challenge for policymakers going forward.

Looking ahead, she expressed optimism about economic momentum, citing December data that showed strong imports, exports, and stock market performance. She added that World Semiconductor Trade Statistics forecasts global semiconductor sales will grow by 26.3% in 2026, despite a high base this year.

Chen said several international institutions also expect cloud computing firms to continue increasing capital expenditures, suggesting rigid AI demand will persist.

She said Taiwan’s economy is likely to maintain momentum, though growth may slow next year due to higher comparison bases. She added that the outcome of US tariff negotiations could affect auto sales and other indicators, making them key factors in future policy decisions.