Confidence in the local economy weakened due to geopolitical concerns surrounding the Russia-Ukraine war, and a rate hike cycle launched by the major central banks in the world, according to a recently released Cathay Financial Holdings Co. survey.
The survey of 19,590 Cathay Life Insurance and Cathay United Bank clients conducted between April 1 and 7 showed that 46.4 percent of respondents believed the local economic situation would deteriorate over the next six months, against 29.9 percent who thought it would improve.
The figures translate into an economic optimism index for the next six months of minus 16.5 in April, down from minus 1.7 seen in a similar poll conducted in March.
In addition, the economic optimism index on the current economic climate also moved lower to minus 16 in April from March’s minus 0.2, according to the survey.
War in Ukraine, rate hikes
Cathay Financial said Russia’s continuing military operations in Ukraine, which began on Feb. 24, had created uncertainty in the global economy.
In addition, decisions by the major central banks to tighten their monetary policies and take funds back from the markets had also cast a shadow.
The Russia-Ukraine war has seen sanctions imposed on Moscow, a move which has sent ripples through the global agricultural and commodity markets, adding upward pressure to inflation, Cathay Financial said.
The U.S. Federal Reserve kicked off a rate hike cycle in March by raising its key interest rates by 25 basis points.
The Fed has also hinted at an additional six rate increase to follow with 50 basis points on the table for its meeting scheduled for May.
In March, the local central bank followed the Fed by raising interest rates by 25 basis points, its first rate hike in more than 10 years.
In addition, Cathay Financial said, a spike in domestically transmitted COVID-19 cases also dampened consumers’ willingness to spend, leading to a fall in confidence in the local economy in the April survey.
As a result, the index gauging the willingness to buy big-ticket items such as cars fell sharply to zero in April from 10.8 in March.
The index assessing the willingness to buy homes, meanwhile, also dropped from minus 46 to minus 52.1, its lowest since May 2019, reflecting the impact resulting from the local central bank’s rate hike.
In April, the employment optimism index over the next six months fell to minus 15.8 from minus 4.9 in March, while the index gauging the current state of the job market also moved lower to minus 12.1 from minus 6.1.
Such downbeat sentiment spread to the stock market with the optimism index about share prices falling to 2.9 in April from 8.1 in March, while the index gauging investors’ willingness to take risks also dropped to 12.0 from 15.0.
The April survey found the respondents estimated Taiwan’s 2022 economic growth would hit 3.30 percent, down from 3.36 in the March survey, with 81 percent of them expecting economic growth of 2 percent or higher.
The poll showed the respondents were more cautious than the government as the Directorate General of Budget, Accounting and Statistics (DGBAS) forecast in February that Taiwan’s gross domestic product would grow by 4.42 percent.
Chu Tzer-ming (???), head of the DGBAS, said in late March that the agency expected to lower its forecast after taking geopolitical crises into account, but emphasized growth would still hit 4 percent or higher.
In the survey, 27.7 percent of the respondents were afraid that growing inflationary pressure worldwide would undermine global demand and hurt Taiwan’s export-oriented economy, while 22.1 percent of them expressed concern that an increase in indigenous COVID-19 cases will slow economic growth.
Source: Focus Taiwan News Channel