Asia business confidence slips as demand slows

KUALA LUMPUR • Confidence in Asia towards 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 Mr 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 sub-optimal," 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 - including Mr Trump's threat to cancel the Trans-Pacific Partnership pact, Philippine President Rodrigo Duterte's anti-American rhetoric, impeachment of South Korean President Park Geun Hye and abolishment of 86 per cent of India's cash by the Narendra Modi administration 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 Prof Fatas.

The survey polled firms across Asia from Nov 28 through Dec 9. Of 118 respondents, just over 42 per cent were positive towards business prospects over the next six months, 41 per cent were neutral and 16 per cent were negative.

Firms in Australia were the most positive with their sub-index of 86, although that was still two points lower than three months prior. Only Singaporean firms were negative with a sub-index of 46, albeit an improvement from the score of 38 in September.

Sentiment tumbled the most in the usually upbeat Philippines, to 70 from 94. In China, the sentiment fell 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.

By sector, the retail and leisure sub-index fell to 56 in the fourth quarter from 68 in the third. Household, food and beverage firms were the most optimistic at 79, up from 72, whereas those in the autos sector were the most pessimistic at 40 from 60.

REUTERS

A version of this article appeared in the print edition of The Straits Times on December 15, 2016, with the headline 'Asia business confidence slips as demand slows'. Print Edition | Subscribe