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Asia business sentiment slips from 7-year high on trade war fears

BUSINESS sentiment among Asian companies slipped for the first time in three quarters on mounting trade friction between China and the United States, a Thomson Reuters/Insead survey found.

The Thomson Reuters/Insead Asian Business Sentiment Index, which surveys firms' six-month outlook, fell to 74 in the second quarter of this year, from a seven-year high of 79 in the previous quarter.

While a reading above 50 indicates a positive outlook, this is the first time the number has dropped since September last year. The latest survey, which took in 61 firms, was conducted from June 1-15. 

The index reading for Singapore fell to 56 from 75 in the first quarter. This marks the economy's lowest reading since the fourth quarter of 2016.

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Broken down by sector, retail and leisure companies were the most bullish, while construction and engineering as well as autos were the most downbeat.

Most industries also expressed concern about trade tensions and higher interest rates, the survey showed.

Earlier this week on Monday, US President Donald Trump threatened to slap China additional 10 per cent tariffs on US$200 billion worth of Chinese goods, if Beijing goes through with its promise to retaliate against US tariffs announced last week. 

Noting that risks to growth are now increasingly real, Antonio Fatas, a Singapore-based economics professor at global business school Insead said that an impending trade war "is not a risk, but a reality", Reuters reported. 

Mr Fatas was also quoted as saying: "US tariffs are going up against China, but also against some of its traditional allies, such as Canada and the European Union. They are all about to retaliate, and today we do not see an easy way out." 

But Arup Raha, chief economist at Malaysia-based RHB Banking Group, said Asian economies with strong external balance sheets may be relatively resilient to the global turmoil, according to Reuters. 

Added Mr Raha: "Global growth, especially in the US and China is still good. Also, wage growth in Asia is signalling domestic strength."