Asian firms’ confidence sinks to near three-year low on trade war fears

JAKARTA: Confidence among Asian companies slumped to the weakest in almost three years in the third quarter as businesses feared blowback from a worsening global trade war, a Thomson Reuters/INSEAD survey showed.

Representing the six-month outlook of 104 firms, the Thomson Reuters/INSEAD Asian Business Sentiment Index fell to 58 for the July-September quarter, its lowest since the fourth quarter of 2015, from 74 three months before.

It was a second straight quarteron-quarter decline for the index and the pace of the fall was the steepest recorded since the survey began in 2009. A reading above 50 indicates a positive outlook.

“The fall in the index could be a strong signal of an economic slowdown,” said Antonio Fatas, a Singapore-based economics professor at global business school INSEAD, adding that the survey results had historically correlated well with changes in economic growth in Asia Pacific.

“We have witnessed a cyclical upturn in the world economy that had to come to an end. We see the end of the cycle in advanced economies as well as emerging markets. This survey confirms that these fears are real,” he said.

A global trade war was cited as the chief business risk by respondents, while the second most identified risks were a China economic slowdown and currency fluctuations. The survey was conducted from August 31 through September 14.

US President Donald Trump escalated his trade war with China on Monday, imposing 10 per cent tariffs on about US$200 billion worth of Chinese imports and warning of further tariffs if China takes retaliatory action. China responded by adding US$60 billion of US products to its import tariff list.

Analysts say a trade war between the world’s two biggest economies may only modestly impact growth in both countries, but will have far reaching implications on others due to global value chains, especially with much of Asia depending on China for trade.

Nevertheless, the subindex for China nosedived to 25 from 63, representing the lowest reading ever and its first negative outlook. Japanese companies also turned pessimistic.

“Because China has become the main target for the US, there is increasing uncertainty about the Chinese economy,” Fatas said.