Taiwan's manufacturing sector returns to growth after 10-month decline

Output and new orders both rise for first time since March.

Taiwan's manufacturing sector closed out 2025 with a return to growth for the first time in 10 months, as companies recorded fresh increases in production, new orders and inventories.

The S&P Global Taiwan Manufacturing Purchasing Managers' Index (PMI) reached 50.9 in December, up from 48.8 in November, signalling an improvement in operating conditions. Though only marginal, it marked the first upturn in the health of the sector since February. A reading above 50 indicates expansion, whilst below signals contraction.

The return to growth came as business confidence picked up again and companies built up their inventories in anticipation of continued demand improvements in 2026.

Demand conditions improve

Goods producers in Taiwan registered a renewed upturn in customer demand at the end of 2025. Whilst the rate of new order growth was modest, the increase in new business ended an eight-month period of decline. There were frequent reports that demand conditions had improved and customer spending had increased.

However, a number of firms continued to note relatively sluggish global economic conditions overall. As such, the index measuring new export orders indicated that foreign demand for Taiwanese goods was broadly stable in December, falling at a fractional pace that was the weakest in nine months.

Production returns to expansion

The rise in overall new work led firms to scale up their production volumes for the first time since March, albeit marginally.

Manufacturers expanded their purchasing activity slightly in December, thereby ending an eight-month sequence of decline. Firms were also hopeful of further increases in sales in the months ahead, which in turn led to renewed expansions in stocks of both purchased and finished goods. Notably, the latter grew at a solid pace that was the steepest since March 2022.

Supply chain pressures intensify

At the same time, supplier performance continued to deteriorate in December, as average lead times for inputs lengthened to the greatest extent for nearly a year and a half. Panel members often linked longer delivery times to insufficient stock levels at suppliers.

Improved expectations around future demand were also evident when firms were asked about their output projections for the year ahead. Notably, the degree of optimism rose to the highest since March.

Employment remains cautious

Despite the fresh increases in output and new orders, Taiwanese manufacturers adopted a cautious approach to staff recruitment in December. Employment fell slightly, following a marginal upturn in November, with a number of firms commenting on hiring freezes due to concerns over costs.

Lower headcounts and higher sales placed greater pressure on capacity, leading to the first expansion in backlogs of work since February.

Price pressures intensify sharply

Prices data indicated that inflationary pressures intensified at the end of the year, with input costs rising to the greatest extent in 17 months. According to anecdotal evidence, higher raw material prices were the principal driver of inflation, which was partly linked to supplier shortages.

Average selling prices also increased in December. The rate of charge inflation was modest, however, with some manufacturers noting that pricing power was limited due to relatively subdued market conditions and client negotiations.

Expert analysis

Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, said: "Taiwan's manufacturing sector ended 2025 on a high, with firms signalling fresh increases in production and overall new business amid reports of firmer demand conditions.

"There were signs that companies anticipate the recovery to continue into 2026, with manufacturers building their inventories and expressing stronger optimism around future output.

"However, cost pressures intensified again in December, with input costs rising at the sharpest pace for nearly a year and a half. This weighed on staff hiring as businesses looked to limit expenses where they could.

"To sustain the upturn, we need to see further improvements in demand - particularly from overseas, where sales have only just stabilised - and greater supply chain resilience. Vendor performance deteriorated at the quickest pace in 17 months amid reports of material shortages, which has also added upward pressure on prices. Not only are firms facing higher costs, but their ability to pass these on to customers remains limited due to tough market competition. If we see further increases in sales, however, this could shift pricing power back towards manufacturers, which could help ease pressure on margins."

The data suggest Taiwan's manufacturing sector enters 2026 on stronger footing, though challenges from limited export demand, deteriorating supply chains and rising cost pressures remain significant concerns for the year ahead.