Taiwan's manufacturing sector dropped to a green light in August, indicating stable growth, after flashing a yellow-red light for fast growth in July, the Taiwan Institute of Economic Research (TIER) said, Focus Taiwan reports. The think tank said old economy industries faced weaker end-user demand during the month.

The reading points to a split within Taiwan's industrial base. Technology firms continue to gain from the global AI boom and from international brands preparing to launch new gadgets, which has pushed up the country's exports. Traditional manufacturers meanwhile have turned cautious as demand softens and clients hold back from building up inventories.

The August TIER composite index, which measures the overall health of the manufacturing sector, fell 1.36 points to 15.96 from a revised 17.32 in July. The figure sits in the green light range of 13 to 16.

TIER uses a five-colour system. Red stands for booming or overheating, yellow-red for fast growth, green for stable growth, yellow-blue for sluggish growth and blue for contraction.

Of the five components in the August index, only the costs subindex rose, edging up 0.03 from July. The subindexes for general business climate, raw material purchases, demand and pricing fell by 0.74, 0.8, 0.19 and 0.18, respectively.

TIER said a growing number of manufacturers became cautious about their outlook even though the Taiex, the Taiwan Stock Exchange's benchmark index, rebounded in August. In its August survey, 1.76% of manufacturing respondents said their business flashed a blue light, up from 0.28% in July. The share reporting a yellow-blue light rose to 20.06% from 10.10%.

The textile industry fell to a green light from yellow-red in July as weak end-user demand cut production. The transportation industry stayed at yellow-blue because of falling car sales and production adjustments.

The computer and optoelectronics index flashed red again. TIER said strong AI demand and clients' eagerness to build up inventories lifted the industry's exports and production.

TIER said AI-driven business opportunities are expected to support Taiwan's economy but listed risks to the global outlook. These include military conflict in the Middle East, rising crude oil prices that are pushing up production costs, and inflationary pressure that could lead major central banks to raise interest rates.