Confidence among Asian companies in the June quarter fell to the lowest level since the 2008-09 financial crisis, as the US-China trade war disrupts global supply chains and shows little relief soon, according to a Thomson poll Reuters / INSEAD.
Thomson Reuters / INSEAD's six-month outlook for the Asian Business Sentiment Index worsened in the three months to June to 53, versus 63 in the previous two quarters.
A reading above 50 means that optimistic respondents overcame pessimists, but concerns about the threat of a protracted trade war led the index to its lowest level since the June 2009 quarter when the first issue of the survey was released.
"There was a big drop (in the index) three quarters ago, and we felt it was uncertainty about the trade war and people were worried about the future," said Antonio Fatas, a professor of economics at INSEAD's global business school. Singapore. .
"We realized after four quarters of low numbers that now, it's not just uncertainty. This is a real slowdown in growth. We see the activity in decline – it's not just the expectation that activity will decline, "Fatas added.
For a fourth consecutive quarter, survey participants cited the global trade war as the main business risk, followed by Brexit and a slowdown in the Chinese economy.
The survey surveyed 95 companies in 11 Asian Pacific countries that together contribute about one-third of the global gross domestic product and home to 45% of the world's population.
It was held from May 31 to June 14.
The index that remains above the neutral point of 50 suggests that firms in the region are not expecting an impending global recession, but a decade low suggests caution has increased as trade tensions rise.
The United States and China have been embroiled in a trade standoff since last year, marked by import tariffs as Washington seeks to force Beijing to make changes to its business policies. Talks between the two to reach a détente ended last month without a deal.
Washington's decision to place Huawei, the world's second-largest smartphone maker, on an export blacklist that bans US companies from doing business with the Chinese company without special approval has further heightened tensions.
Still, US President Donald Trump said an agreement "will eventually be reached."
BNP Paribas, however, does not expect a solution to the trade war this year, said Manishi Raychaudhuri, an Asia-Pacific stock strategist with the Hong Kong-based banking group.
Trade tensions are harming supply lines, especially those of more sophisticated smartphones, with many manufacturers looking to shift production out of China and into countries like Vietnam, Taiwan and Bangladesh, Raychaudhuri noted.
These changes, however, "can not be made overnight," he added.
US-based Broadcom, which makes radio frequency chips used in Apple iPhones and iPads, last week predicted a $ 2 billion impact on annual sales due to trade tensions and the US ban on Huawei.
Huawei acknowledged a stronger-than-expected impact on the ban and reduced its forecast for the year.
China's economy is also feeling the heat, with industrial output growth slowing to a 17-year low in May.
Survey respondents included Japan's Nikon, South Korea's Samsung Electronics, India's Tata Consultancy Services and Reliance Industries Ltd, as well as PTT PCL, Thailand.
The companies surveyed may change from quarter to quarter. – Reuters