Business sentiment among manufacturers weakens in February

03/25/2022 04:19 PM
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Taipei, March 25 (CNA) Business sentiment in the local manufacturing sector weakened in February amid escalating geopolitical tensions in the wake of military conflict between Russia and Ukraine, the Taiwan Institute of Economic Research (TIER) said Friday.

In addition, fears over a rate hike cycle by the U.S. Federal Reserve also spooked business sentiment among manufacturers in Taiwan, TIER said. The Fed raised its key interest rates by 25 basis points on March 16, the first rate increase since 2018, to take on skyrocketing inflationary pressure.

February business sentiment survey

In February, TIER said, the composite index for the manufacturing sector's business sentiment fell by 2.42 points from a month earlier to 101.44.

In the same month, the composite index for the service sector's business sentiment dropped by 2.10 points from a month earlier to 94.07, marking the second consecutive month of decline, while the composite index for the property industry also moved lower by 2.80 to 107.14.

Citing a survey, TIER said 17.9 percent of the polled manufacturers said their business had improved from a month earlier in February, down from 26.9 percent in a similar survey conducted in January, while 28.0 percent of them said their business had deteriorated from a month earlier, up from 18.7 percent.

The survey also found that 41.5 percent of the respondents expected their business to improve over the next six months, up from 39.6 percent in the January poll, while 9.1 percent of them expected their business to deteriorate over the next six months, up from 8.2 percent a month earlier.

Ukraine, COVID-19

Speaking with reporters, Liu Pei-chen (劉佩真), the supervisor of TIER's Taiwan Industry Economics Services data bank, said the war being waged by Russia against Ukraine had exacerbated the already tight shortage of global raw material supplies.

In addition, lockdowns implemented by China to control COVID-19 outbreaks in several major industrial cities, such as Shenzhen and Dongguan, have also created uncertainty for many Taiwanese manufacturers, Liu said.

"But, the local semiconductor industry continued to command the lead over its peers in the global market so many of its foreign clients did not scale back their orders despite the economic uncertainty,"

Liu said. "They fear they would not be able to compete with others later on to secure enough capacity if they cut orders from Taiwanese suppliers now."

"I think the local semiconductor industry is expected to continue to serve as a pillar of Taiwan's economic growth this year, and the pure-play wafer foundry operators such as Taiwan Semiconductor Manufacturing Co., will dominate the growth again," Liu added.

Liu said TSMC would keep up its efforts in developing high-end processes including the 7-nanometer, 6nm, 5nm, and 4nm processes, adding that after its 3nm process starts commercial production, the chipmaker will receive an additional boost to secure orders from its major clients like Apple Inc., Advanced Micro Devices Inc. (AMD), MediaTek Inc., and Intel Corp.

Inflation concerns

Commenting on rising inflation, TIER President Chang Chien-yi (張建一) said the Russia-Ukraine war had boosted upward pressure on prices of commodity goods, in particular crude oil, so it was likely that Taiwan would see the consumer price index (CPI) topping the 3-percent mark in March.

According to Gordon Sun (孫明德), director of TIER's Economic Forecasting Center, there is a silver lining in that Taiwan enjoyed an increase of more than 3 percent in gross domestic product (GDP) in the past three years and is likely to see another over 3 percent increase this year, and this GDP growth is expected to offset the impact from the growing inflation.

In February, Taiwan's consumer price index grew by 2.36 percent to top the 2-percent level in the wake of soaring crude prices and raw material prices.

The local central bank has predicted that an increase of over 2 percent in the CPI is expected to continue into the third quarter of this year before falling below that level in the fourth quarter.

Taiwan's GDP growth is forecast to grow by 4.42 percent in 2022 after a 6.45-percent increase in 2021, according to the Directorate General of Budget, Accounting and Statistics.

(By Pan Tzu-yu and Frances Huang)

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