Trade war drags on business sentiment in Asia-Pacific, reaches 10-year low: report

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Business confidence among top companies in the Asia-Pacific region has fallen to its lowest point since the 2008-2009 financial crisis, according to the Asian Business Sentiment report, a survey by Thomson Reuters and Singapore’s INSEAD business school.

The business sentiment index fell to 53 in the quarter ended June from a rating of 63 held in the two previous quarters. The measurement tracks companies’ outlook for the next six months and a score above 50 indicates an overall positive outlook.

The fact that this quarter’s number remained just over 50 indicates that companies do not expect a global recession, but are cautious about the future as the trade war escalates.

Uncertainty over Brexit is the second biggest concern, with 25% of firms naming it as the biggest risk for the next six months.

The report was a survey of 95 companies in 11 countries which make up a third of the world’s GDP output and 45% of its population. It was administered between May 31 and June 14. Companies surveyed include South Korea’s Samsung, Japan’s Nikon, and Thailand’s state-owned oil and gas company PTT PCL.

The trade war has become the biggest concern for companies in Asia. Data: Thomson Reuters/INSEAD (Image credit: TechNode/Eliza Gkritsi)

The global trade war has become the top perceived business risk, when a little over a year ago it was only a “worry.” The report from the first quarter of 2018 found that 14% of surveyed firms put “worries” about an impending trade war at the top of their concerns. The next quarter the “worries” became a reality and in the last three months, the trade war was the top concern for 57% of surveyed firms.

The trade war has had a significant impact on global supply chains, as many companies are looking to move production outside of China. Smartphone production has been severely affected by the tariff war. Taiwanese Foxconn, the biggest assembler of iPhones and China’s biggest private sector employer, announced last week that it is ready to expand productive capacity outside of China to minimize tariff impact.

Manishi Raychaudhuri, the Asia-Pacific equity strategy for BNP Paribas, the world’s eighth-largest bank in 2018 by asset size according to Standard & Poor’s, told Reuters that the trade war is unlikely to be solved in 2019. He added that the changes that must be made to supply chains “will not happen overnight.”