Japanese business outlook weakening in East Asia

Business sentiment among Japanese firms operating in East Asia has dropped after a recent recovery, according to a December survey of Japanese companies and affiliates operating in 12 regions by the Japan External Trade Organization (JETRO). Although sentiments were mixed, the outlook for the next two to three months has clearly weakened.

JETRO conducts a monthly survey to measure year-on-year changes, expressed as indices, in Japanese firms’ business outlook for the current month and the next two to three months.

Among companies operating in five ASEAN countries, current indices in Malaysia and Indonesia have worsened sharply, but have improved in the Philippines and Thailand. The index in Singapore has remained negative for three consecutive months. The main reason for the slump in Malaysia is sentiment among companies in the transportation, machinery, oil, chemicals, steel and metals industries. Sentiment in these industries had been rather favorable until November. The drop in Indonesia is due to slumping sentiment among non-manufacturers.

Indices in China, Hong Kong, the Republic of Korea (ROK) and Taiwan all remain in positive territory, but are down from the previous month with the exception of Taiwan. In Hong Kong, sentiment among miscellaneous manufacturers and companies in the transport, communications, commerce and services industries has worsened, resulting in a notable drop in Hong Kong’s overall index.

Forward indices, when compared with current indices, are heading downward in all 12 regions surveyed. This trend is especially noticeable in the ASEAN countries of Malaysia, Singapore and Thailand, where forward sentiment among transport machinery companies has worsened, and the Philippines, where electric machinery makers have taken an unfavorable outlook.

Forward indices inChina, Hong Kong, ROK and Taiwan are also lower than their current indices, but still in positive territory. The ROK forward index fell into negative territory.

A total of 1,057 replies were received in the ASEAN countries (114 in Indonesia, 154 in China (141 in the North, 37 in the Northeast, 171 in the East and 126 in the South), 189 in Hong Kong, 64, in ROK and 217 in Taiwan.

JETRO, in cooperation with Japan’s Ministry of Economy, Trade and Industry, has been conducting the survey in the first week of every month since June 2001 in the five major ASEAN countries, since June 2002 in South China, Hong Kong and Taiwan, since July 2002 in North and East China, and since October 2002 in ROK and Northeast China.

The aim of the survey is to provide up-to-date information on business conditions in the Asian economy to help companies develop more effective business strategies. Firms are asked to compare earnings prospects, supply and demand, inventory, sales prices and accounts receivable with the same period one year earlier. The current month and the next two to three months going forward are evaluated separately in each question. Replies are limited to "better," "same," or "worse" than a year earlier. The difference between the ratio of positive ("better") and negative ("worse") responses is used to produce the diffusion index.