Economic optimism wanes amid U.S. policy unpredictability
Taiwanese Business Confidence Cobbles Together Cautious Optimism Amidst US Trade Tensions
A survey by the Taiwan Institute of Economic Research (TIER) reveals a decline in business confidence last month, as companies grappled with the specter of potential "reciprocal" tariffs from the United States. However, a recent truce in the US-China trade war brought some relief, bolstering hope for a respite from escalating tensions.
Local manufacturers' sentiment plummeted to a two-year low of 90.9, a 3.53-point drop from March, according to TIER. The sluggishness was attributable to the uncertainty surrounding US President Donald Trump's trade policy and the looming threat of heavy tariffs on Taiwanese goods.
On April 2, Trump announced significant tariffs on trade partners, including a 32% levy on Taiwanese imports. Yet, a week later, he put the brakes on with a 90-day pause, offering a glimmer of hope amid the unpredictable landscape.
Only 18.2% of manufacturers reported improved performance last month, comprising a staggering 14.4 percentage point decline from the previous month, TIER reported. On the other hand, firms experiencing a decrease in business surged 12.7 points to 37.4%.
While looking ahead, 22.9% of manufacturers expressed optimism about their business prospects over the next six months, an uptick from 19.4% one month earlier. Conversely, those with a pessimistic outlook dipped 3.7 percentage points to 29.2%.
The temporary easing of trade tensions between the US and China has prompted global companies to stockpile inventory, despite the lingering uncertainty, as per TIER Economic Forecasting Center director Gordon Sun.
Sun suggested that if Trump embraces flexibility and softens tariffs on imports, Taiwan's economy could still grow by about 3% this year. Meanwhile, he expressed hope that the US might settle for a 15% tariff on Taiwan's goods, should bilateral trade talks prove fruitful.
The reading for service providers' confidence weakened 3.03 points to 85.41, due to the impact of the stock market rout and the New Taiwan dollar's sharp appreciation on exporter profits and life insurers. Private consumption, however, remains resilient and supports sales of wealth management products, according to Sun.
Despite these cautious observations, economic uncertainties at home and abroad necessitate a measured approach to business, the economist stated. The sentiment gauge for construction firms and real-estate brokers also dipped 2.98 points to 90.38, marking a four-month low, according to TIER's Taiwan Industry Economics Database researcher Arisa Liu.
Liu noted that the housing market has slowed and might not recover anytime soon, given the central bank's continued loan restrictions and the ongoing US tariff drama. Additionally, Nvidia Corp's expansion plans in Taipei's Shilin District could benefit the area, but are not expected to bolster the market significantly, as per Liu.
The overall outlook for Taiwan's economy is modest, with a revised GDP growth forecast for the year at around 3.1%. Although the Taiwanese economy remains sensitive to US trade policies, especially tariffs, exports are still anticipated to grow robustly by approximately 9%.
In the light of the truce in the US-China trade war, businesses in Taiwan might find some respite from escalating tensions, as they navigate the complex intersection of finance, business, politics, and general news. However, the uncertain trade policies of the US administration continue to cast a shadow over local manufacturers, as unprecedented tariffs could potentially disrupt the delicate balance of the Taiwanese economy.
