Business sentiment among Taiwan's manufacturers weakens to 2-year low

Taipei, May 28 (CNA) Business sentiment in the local manufacturing sector dipped to a new low in two years in April in the wake of a geopolitical crisis caused by a war waged by Russia against Ukraine, according to the Taiwan Institute of Economic Research (TIER).

In addition, China's lockdowns to prevent COVID-19 infections in several industrial cities, where many Taiwanese companies have operations, have also dampened many manufacturers' sentiment, TIER said.

Data compiled by TIER, one of the leading think tanks in Taiwan, showed the composite index gauging the manufacturing sector's business sentiment fell by 4.49 points from a month earlier to 94.61 in April, the lowest level since July 2020, marking the fourth consecutive month of a decline.

TIER said Russia's invasion of Ukraine has boosted prices of energy as well as food and other commodities, adding upward pressure on inflation worldwide, which has prompted the major central banks to launch a rate hike cycle, leading to a slowdown in the global economy.

TIER added the COVID-19 lockdowns in Chinese cities such as Shanghai, Kunshan and Suzhou have sent ripples through the global supply chain, which has cast more shadows over many manufacturers here.

Downward trend in business sentiment

Citing a survey conducted last month, TIER said 23.2 percent of the respondents in the manufacturing sector thought their business improved in April, down from 38.4 percent in a similar poll conducted in March, while 36.7 percent of them thought their business deteriorated in April, up from 14.7 percent in March.

TIER said industries including textile, food, feather, plastics and rubber makers, in particular, appeared downbeat about their business in April.

In addition, 25.5 percent of the respondents agreed their business will improve over the next six months, down from 27.9 percent in March, while 21.8 percent said it will deteriorate over the next six months, up from 14.7 percent in March, the survey found.

Looking ahead over the next six months, TIER said, while the electronics and machinery industries remained upbeat about their business prospects in April, their optimism fell from a survey conducted in March.

TIER President Chang Chien-yi (張建一) said the global economy is faced with rising uncertainty resulting from the Russia-Ukraine war in the second half of this year as international crude oil prices keep growing, while a shortage of food is expected to drag down the economy further.

Chang said as the major central banks, in particular the U.S. Federal Reserve, have turned aggressive, tightening their monetary policies to take on growing inflation, such a move could send the global economy into a recession.

More upbeat in service sector

As for the local service sector, the composite index for the sector's business sentiment bucked the downturn seen among manufacturers, moving higher by 0.21 points from a month earlier to 95.49 in April.

TIER said while a spike in domestically transmitted COVID-19 cases in Taiwan has affected the restaurant and tourism industry and led to volatility in the local financial market, demand for fresh foods for cooking at home and items to fight against the disease moved higher.

In addition, congestion in ports worldwide and a shortage of container cargo shipping services are expected to maintain freight rates at highs, so the transportation and logistics/warehousing industries have expressed optimism toward their business over the next six months, TIER said.

Meanwhile, the composite index gauging business sentiment in the property sector fell 7.85 from a month earlier to 96.10 in April after transactions of homes, shops and offices in the six largest cities -- Taipei, New Taipei, Taoyuan, Taichung, Tainan and Kaohsiung -- dropped 11.2 percent from March, TIER said.

On Friday, the Directorate General of Budget, Accounting and Statistics (DGBAS) announced it has lowered its forecast for Taiwan's 2022 gross domestic product (GDP) by 0.51 percentage points to 3.91 percent, falling below the 4 percent floor the government had previously anticipated, also citing geopolitical tensions and an explosive increase in COVID-19 infections.

However, the DGBAS said that as the local manufacturing sector has been keen to invest more to upgrade technologies and expand production, Taiwan's economic structure has been improving and therefore there is no risk of stagflation, a situation where the inflation rate is high, economic growth rate slows, and unemployment remains high.