Business sentiment last month declined across sectors and is not expected to improve in light of escalating uncertainty, the Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) said yesterday.
The confidence gauge among local manufacturers shed 0.43 points to 84.2, the lowest since May 2020, shrinking for 10 straight months, the Taipei-based think tank said, citing a monthly survey.
“The worst is yet to come, likely in the first half of next year, as downside risks are really very high,” TIER president Chang Chien-yi (張建一) said, citing high inflation in the US, global monetary tightening, geopolitical conflicts and China’s tight COVID-19 controls.
The US and China account for more than 50 percent of Taiwanese exports.
The US Federal Reserve might sound less hawkish, but is likely to press ahead with interest rate hikes until consumer prices come under control at around 2 percent, from 7.7 percent last month, Chang said.
Monetary tightening has chilled consumer spending, as evidenced by tepid sales of technology products, the mainstay of Taiwan’s exports, the economist said.
About 40 percent of electronics and machinery suppliers have a negative view about business in the next six months, as international customers seek to avoid overdependence on Taiwan by diversifying supply sources amid US-China technology competition, TIER said.
What matters most is whether China would continue its “zero-COVID-19” policy that is suffocating economic activity, Chang said.
Taiwan would see medium inflation and low GDP growth next year, supported mainly by domestic demand, as loosened disease controls can allow tourism and hospitality sectors to emerge from the COVID-19 pandemic, TIER economist Gordon Sun (孫明德) said.
Some manufacturing sectors could come out of the woods in the second quarter of next year after active inventory digestion, Sun said.
If China eases its strict COVID-19 curbs, revenge consumption could follow and push up inflation, a scenario that also merits caution, Sun said.
The sentiment reading for service sectors lost 3.65 points to 91.09, as logistics and warehousing operators, and securities houses and insurance companies took a hit from an economic slowdown, TIER said.
By contrast, restaurants, hotels, travel agencies and retailers are looking at business pickup, it said.
The confidence measure for the construction industry dropped 5.24 points to 85.1, as softening property sales weighed on new construction contracts despite the government’s promotion of green public projects, it found.
Private engineering firms and developers generally hold neutral views about business in the coming six months, it said.
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