Taipei [Taiwan], June 24 : Taiwan's manufacturing business sentiment weakened for the fourth consecutive month in May, reaching its lowest level in 29 months. The primary cause, according to the Taiwan Institute of Economic Research (TIER), was uncertainty over America's tariff policy, as reported by Focus Taiwan.

The TIER's latest composite index, which measures business sentiment among local manufacturers, dropped by 4.74 points to 85.83 in May. This marked the fourth straight monthly decline and represented a new low, not seen since December 2022 when it hit 85.97.

The service sector indicator also saw a decline, moving 0.35 points lower to 85.32 from the previous month. This marked its fifth consecutive monthly decline, as TIER data showed.

Despite solid demand in industries like artificial intelligence (AI), high-performance computing, and cloud computing services, business revenue in the wafer foundry and semiconductor packaging and testing sectors saw a slight decline in May, according to TIER.

The think tank explained in its report that this decline was partly due to downstream wafer and packaging clients getting early deliveries to avoid potential tariffs, which resulted in a high comparison base.

Additionally, the significant appreciation of the Taiwan dollar in May led to more noticeable fluctuations in revenue for the export-oriented manufacturing sector. Continued weak demand for certain non-high-tech products, coupled with pricing pressure from overseas competitors, also led manufacturers to adopt a more cautious outlook on the economic climate during the month, TIER said.

Looking ahead, rising tensions in the Middle East, particularly between Israel and Iran, have sparked concerns about energy, shipping, and global economic stability, TIER noted. The lack of progress in trade negotiations between the U.S. and other countries is also adding to global economic uncertainty. A survey conducted in May revealed that most manufacturers' economic outlooks for the next six months reflect a wait-and-see approach, according to TIER's monthly report.

However, TIER Economic Forecasting Center Director Gordon Sun argued that recent global developments indicate a potential turning point has arrived. Regarding the U.S.'s "reciprocal" tariffs, Sun expressed an expectation that Taiwan-U.S. trade negotiations would yield results soon, and that exchange rate fluctuations have become less volatile compared to previous months.

He added that if a ceasefire in the Israel-Iran conflict is achieved, then the three major variables, tariffs, exchange rates, and the Middle East conflict, would all trend in a positive direction, allowing businesses to breathe a sigh of relief in the second half of the year.

Additionally, TIER President Chang Chien-yi said that crude oil prices sank by 7 percent on Monday amid signs of a ceasefire between Israel and Iran, suggesting this round of the crisis appears to be easing. Chang also indicated that, compared to reciprocal tariffs, tariffs on semiconductors would have a greater impact on Taiwan, which is home to Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest dedicated independent semiconductor foundry.