A sharp Taiwan dollar surge has pushed the island’s manufacturing sector into recession for the first time in over a year. The latest report from the Taiwan Institute of Economic Research (TIER) revealed that the business climate indicator turned blue in May. This color code signals a contracting economy, marking a key shift after 15 months of steady growth. TIER explained that despite easing tariff tensions between the U.S. and China, Taiwan’s currency appreciated rapidly. This Taiwan dollar surge made exports less competitive, widening the price gap with U.S. dollar-based goods. Manufacturing purchasing managers indices in the U.S., China, and Japan remained in contraction.
Taiwan’s sector faced added strain from its currency strength, which reduced growth in export orders year-on-year. As a result, pricing and demand indicators fell significantly. In May, the manufacturing signal score dropped to 9.88 points, down nearly 2 points from April. This fall moved Taiwan’s economy into recession territory, marking the first such event since February of last year. Business confidence also weakened, as both the strong currency and lingering tariff concerns weighed on industry leaders. Even strong tech sectors like computers and electronics experienced setbacks.
Although demand for AI and audiovisual equipment remained stable, the Taiwan dollar surge led to lower export prices for two months in a row. This drop dragged the electronics sector from a growth phase to a stable phase. Looking forward, TIER warned of broader risks. Domestic retail sales remain under pressure. The real estate market continues to struggle. Meanwhile, rising global oil prices could lead to fresh inflationary threats. A weaker U.S. dollar has also made many Asian currencies, including Taiwan’s, relatively stronger. That shift further damages Taiwan’s export competitiveness. TIER advised the government to closely track exports and global economic trends. Staying alert to these shifts will help Taiwan respond effectively and manage upcoming challenges in the second half of the year.
