Why confidence in Asia is slipping
kuala lumpur — Confidence in Asia toward business conditions over the coming six months dropped in the final quarter of 2016 to its lowest level in a year as firms fretted about sluggish demand in a persistently low-growth economic environment, a Thomson Reuters/Insead survey found.
Firms also flagged political uncertainty as a key near-term risk, including that brought by the election of Donald Trump to the US presidency — an outcome some cited as a key risk in the same survey three months prior.
The Thomson Reuters/Insead Asian Business Sentiment Index, representing the half-year outlook of 118 firms, fell to 63 from 68 in the September quarter, although it remained above the 50 mark separating optimism from pessimism.
“The fall in the business sentiment index confirms what we have seen over the past few years: the world economy is growing but in a way that looks suboptimal,” said Singapore-based economics professor Antonio Fatas at global business school Insead.
“It seems very difficult to regain a high state of confidence.”
Asian companies are particularly reliant on demand from China where slowing economic performance has been the main cause for concern over the past few years. But in recent weeks, political worries have come to the fore.
Trump has advocated more UScentric trade relations and the cancellation of the Trans-Pacific Partnership trade pact.
He has also vowed to repatriate jobs such as in the outsourcing industry which flourishes in the Philippines, where new president Rodrigo Duterte is known for anti-American rhetoric.
In South Korea, lawmakers have voted to impeach President Park Geun-hye over an influence-peddling scandal after weeks of protests, while in India, Prime Minister
The fall in the business sentiment index confirms... the world economy is growing but in a way that looks suboptimal
Antonio Fatas, Professor at Insead
Narendra Modi abolished 86 per cent of the country’s cash overnight to tackle corruption. Firms have to navigate such events “with the possibility of either ‘muddling through’ as we have managed to do over the last two years or hitting a wall because one of these uncertain events turns negative,” said Fatas.
Thomson Reuters and Insead polled firms across Asia from November 28 through December 9. Of 118 respondents, just over 42 per cent were positive toward business prospects over the next six months, 41 per cent were neutral and 16 per cent were negative.
Respondents included Australia’s Transurban Group, India’s Reliance Industries, PT Telekomunikasi Indonesia, Japan’s Asahi Group Holdings, Korea Aerospace Industries and the Philippine National Bank.
Firms in Australia were the most positive with their subindex of 86 although that was still two points lower than three months prior. Only Singaporean firms were negative with a subindex of 46, albeit an improvement from the 38 of September.
Sentiment tumbled the most in the usually upbeat Philippines, to 70 from 94. Though optimistic, the subindex compared with that economy’s average of 91 over the survey’s seven-year life.
Sentiment fell in China, to 80 from 90, in India to 70 from 75 and in Thailand to 60 from 72. But in South Korea it rose to 57 from 50 despite the political turmoil. —