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SINGAPORE (Mar 5): Oxford Economics says the prospects of Northeast Asian economies, which are uniquely exposed to the ongoing global electronics slowdown, are not as bleak as they seem.
This is due to trade diversion’s partial mitigation of the impact of US-China trade tensions as well as limited direct competition between China and other Northeast Asian economies in the high-value field of semiconductor production, according to the global forecasting and quantitative analysis firm.
In a Tuesday report, economist Tommy Wu says the global electronics downcycle, particularly in the case of semiconductors, is reflective of normalising prices after a period of exceptional price increases in the generally deflationary sector.
The impact of the US-China trade conflict has also likely been partly mitigated by trade diversion in certain countries as well, in his view.
“Korea’s semiconductor exports to the US have surged since October last year, a timing which coincides with the imposition of 10% US tariffs on US$200bn worth of Chinese goods in September. Taiwan’s data also show exports to US holding up, in contrast to the general downtrend,” illustrates Wu.
Further, Wu thinks direct competition between Chinese semiconductor producers, and those in other Northeast Asian economies, is limited as the former’s strengths lie in design rather than production.
“This is in contrast to typical development patterns in other industries, where the production stage precedes the design stage. As such, we expect China to continue to rely on electronics supply from other APAC economies, at least over the medium term while its electronics production is catching up,” states Wu.
Citing Oxford Economics’ Global Impact Model, he believes Chinese domestic demand has a relatively stronger impact than that from the US and the EU, with China expected to continue its reliance electronics imports from Asia – at least over the medium-term as the nation’s electronics production continues to ramp up.
“The share of Chinese domestic demand is growing steadily, and is likely to become an increasingly important source of final demand for the electronics sector in APAC economies going forward,” opines Wu.
Structural drivers such as automation and artificial intelligence (AI) will benefit semiconductors in the long run, he adds – with the use of semiconductors in growth areas such as electric vehicles (EVs) and smart devices to further support the sector’s expansion.
“Indeed, the use of semiconductors is expanding beyond the traditional electronics sector, and electric vehicles, smart devices and the internet of things will provide additional support for the sector’s growth in the long run,” says the economist.