Taipei: In the wake of strong global demand for AI applications, Taiwan’s export-oriented economy has accelerated, with the composite index of economic indicators flashing the first “red” light in December for the first time in a year, indicating the economy is in “overheating” mode, the National Development Council (NDC) reported on Tuesday.

According to Focus Taiwan, the index of leading indicators, which gauges the potential state of the economy over the next six months, also moved higher in December amid growing optimism over the outlook. The index of economic indicators rose one point from a month earlier to 38, at the lower end of the “red” light. The previous red light appeared in December 2024 and also stood at 38.

The NDC employs a five-color system to track the economy, with red signaling overheating (38-45 points), yellow-red indicating a warming economy (32-37 points), green meaning stable growth (23-31 points), yellow-blue reflecting sluggishness (17-22 points), and blue signaling contraction (9-16 points).

Chen Mei-chu, head of the NDC’s Department of Economic Development, noted that although the U.S. tariff policies, unveiled in April 2025, created uncertainties, the stronger-than-expected AI boom has allowed Taiwan’s exports to repeatedly hit new highs, paving the way to the first red light in a year.

Among the nine factors in the December composite index, the sub-index for sales generated by overtime hours rose one point to flash a yellow-red light, and the sub-index on manufacturers’ business sentiment also rose one point to flash a green light. However, the sub-index on revenue posted by wholesale, retail, and food/beverage industries fell one point, flashing a yellow-red light in December.

The other six factors-money supply, stock prices, industrial production, merchandise exports, manufacturing sector revenue, and machinery and electric equipment imports-remained unchanged. The December leading indicators rose 1.10 percent from a month earlier to 103.36, marking the fifth consecutive month of growth, according to the NDC.

Among the seven factors in the leading indicators, the sub-indexes on export orders, money supply, stock prices, and manufacturers’ business sentiment moved higher, while the sub-indexes on employment, floor area of new construction projects, and imports of semiconductor equipment fell, the NDC said.

As the United States has agreed to cut tariffs on Taiwanese goods from 20 percent to 15 percent to ease uncertainties, local firms have received a boost in sentiment, Chen stated. Additionally, think tanks at home and abroad have forecast that Taiwan’s economy is expected to grow at a pace of over 4 percent this year, she noted.