Deterioration in the external environment due to the global economic slowdown, US-China trade friction, and other factors

「The global economy showed a gradual recovery trend during the period, but the outlook remained uncertain due to the trade and monetary policies of various countries and rising geopolitical risks.」

「During the six-month period, the global economy showed a gradual recovery trend, but the outlook remained uncertain due to developments in the trade and monetary policies of various countries and rising geopolitical risks. Rising resource and energy prices and logistics delays pushed up inflation and became factors driving the operation of monetary policy and volatility in interest rates, foreign exchange rates and equity markets.」

「The global economy showed a gradual recovery trend during the period, but the outlook remained uncertain due to the trade and monetary policies of various countries and rising geopolitical risks.」

「During the six-month period, the global economy continued to see prices rise. In the US, although inflationary pressures showed signs of easing, concerns over a recession increased due to the cumulative effects of monetary tightening. In Europe, real wages continued to rise, but domestic demand remained weak and sentiment showed little recovery. In China, domestic demand weakened against the backdrop of the prolonged real estate downturn, and growth slowed. The international situations in Ukraine and the Middle East also remained unstable, while monetary policies in various countries caused volatility in foreign exchange rates, and the outlook remained uncertain.」

「During the period, the post-COVID lifestyle became established and the trend toward reduced economic and social impacts from COVID-19 continued. However, unstable international conditions, including the situations in Ukraine and the Middle East, remained unpredictable. Inflation progressed worldwide and monetary tightening continued, while the Chinese economy also slowed due to weak domestic and external demand stemming from the prolonged downturn in real estate development investment. The outlook therefore remained uncertain.」

「In the electronic components industry, demand for consumer products such as smartphones and PCs reached a bottom but remained weak, affected by the economic slowdown in China and persistently high interest rates in Europe and the United States. Demand for industrial equipment used in cloud and data-center applications and for semiconductor manufacturing equipment and factory automation equipment was firm in generative AI applications, but remained weak because of investment restraint. Automotive electronic components showed a clearer recovery as semiconductor shortages were resolved and demand continued to increase with the increasing use of automotive electronics and the shift toward electric vehicles.」

「Although procurement difficulties for semiconductors and other products showed signs of easing during the period, unstable international conditions continued due to prolonged and rising geopolitical risks. The outlook remained uncertain amid prolonged inflation and continued monetary tightening in Europe and the US, and an economic slowdown caused by weak domestic and external demand stemming from real estate development investment in China.」

「In the electronic components industry, demand for consumer products such as mid-range smartphones and PCs stagnated due to the impact of an economic slowdown caused by globally rising interest rates and soaring raw-materials prices. Investment in industrial equipment, including cloud and data centers and semiconductor manufacturing equipment, also remained subdued as companies adopted a cautious stance.」

「During the period, geopolitical risks increased due to Russia's invasion of Ukraine, while soaring international commodity prices caused consumer prices worldwide to be hit by inflation exceeding 8%, the highest level in 28 years. Rapid interest-rate hikes in the US drove the US dollar to a 36-year high, undermining confidence in the financial system, and global financial markets remained unstable.」

「In the electronic components industry, continued uncertainty in the economic environment, including the prolonged situation in Ukraine and persistently high inflation, led to restraint in investment in IoT devices for digital transformation in cloud and data centers, industrial equipment, factories and medical applications.」

「The global economy was beginning to emerge from the recession caused by the spread of COVID-19 when Russia's invasion of Ukraine sent international commodity prices soaring, and consumer prices worldwide were hit by inflation exceeding 8%. Major countries began raising interest rates in unison, while reductions in the assets of the world's five major central banks, including the US Federal Reserve (FRB), reduced the global money supply. This coincided with the downturn in the silicon cycle, and the global economy entered a difficult phase. Toward the end of the period, rapid interest-rate hikes in the US sent the dollar to a 36-year high, shaking financial markets and casting a shadow over the global economic outlook as share prices declined.」

「Shortages of components caused by tight semiconductor supply and demand and the impact of COVID-19 in China had a major effect on automobile production, and difficult conditions continued.」

「Toward the end of the period, Russia's invasion of Ukraine drove international commodity prices even higher. As consumer prices began to rise, the US proceeded with interest-rate hikes. In addition to tensions between the US and China, concerns over fragmentation of the global economy and stagflation resulting from stronger economic sanctions against Russia heightened uncertainty over the economic outlook, and global equity markets showed increasing signs of correction.」

「In the electronic components industry, performance remained generally solid, supported by demand for 5G-compatible smartphones and related infrastructure, data centres associated with the spread of remote work and online learning, and IoT devices for digital transformation in factories, healthcare and other areas, although some semiconductors and electronic components were affected by supply shortages. Meanwhile, although automotive demand remained solid, the company was unable to resolve disruptions to component supplies from Southeast Asia caused by the spread of COVID-19 or semiconductor shortages, which affected automotive production.」

「During the period, the global economy was hit by a fifth wave of infections caused by COVID-19 variants. The momentum of the global economic expansion that began in the latter half of the previous year weakened, and conditions entered a plateau. Although the spread of infections worldwide was subsiding toward the end of the period, except in some countries, production stagnated due to shortages of semiconductors and energy. In addition to disruptions in logistics networks, the mismatch between supply and demand resulting from the resumption of economic activity kept prices of oil and other international commodities rising. China, which had driven the global economy, also shifted toward an economic slowdown due to tighter controls and regulations on companies and the non-performing loan problems in the real estate sector, which were becoming a drag on global economic growth.」

「Demand for automotive electronic components recovered, but concerns remained over the impact of semiconductor shortages on automobile production.」

「During the period, the global economy suffered a sharp downturn at the beginning of the period as the spread of COVID-19 intensified. However, the scale of the decline gradually narrowed from midyear onward, supported by large-scale fiscal stimulus and substantial monetary easing in major developed countries. In the latter half of the period, conditions brightened as global trade and production turned positive.」

「In the electronic components industry, uncertainty continued amid the prolonged US-China trade war and the extended impact of the COVID-19 pandemic. However, markets such as those created by the adoption of infection-control measures and automotive-related markets showing signs of recovery from the pandemic are driving demand for electronic components.」

「Global production in the first half of the period declined 10% year on year, while global trade fell 15%, and real gross domestic product (GDP) recorded a decline more than twice that during the global financial crisis.」

「In the electronic components industry, signs seen in the third quarter of the previous fiscal year that inventory adjustments for semiconductors and electronic components were ending failed to develop into a firm recovery amid the effects of the US-China trade war and worsening Japan-South Korea relations. The industry was then hit by the COVID-19 pandemic and was significantly affected by the resulting stagnation in global economic activity.」

「The global economy also saw production begin to decline in the spring as global trade contracted, and weakness spread through the global economy amid inventory adjustments and declining capital investment. Against this backdrop, Europe and emerging economies followed the US in shifting toward monetary easing. Just as the slowdown in the global economy was beginning to ease, with the conclusion of the Phase One US-China trade agreement and the semiconductor cycle, a leading economic indicator, reaching a bottom, the global spread of COVID-19 occurred.」

「In the electronic components industry, inventory adjustments for semiconductors and electronic components were beginning to ease, but the US-China trade war and deteriorating Japan-South Korea relations had not improved, and uncertainty about the impact on raw-materials manufacturers remained unresolved. In addition, as a decline in vehicle sales became apparent, uncertainty remained over whether raw-materials manufacturers benefiting from the increasing use of electronic components in vehicles would be affected.」

「During the period, the global economy was affected by China's response to the US's fourth round of punitive tariffs on Chinese imports with retaliatory tariffs, following the third round, causing the US-China trade war to intensify. Trade friction also spread to the US and EU, Japan and South Korea, and other regions, while global trade began to decline. In addition, geopolitical risks expanded due to Brexit, demonstrations in Hong Kong and the bombing of Saudi Aramco's oil fields. Global production slowed, and signs of weakness spread through the global economy.」

「In the electronic components industry, high-end smartphones became more sophisticated through the adoption of OLED displays, multiple cameras and 3D-sensing modules, but sales have been sluggish because of their higher price points and the impact of US-China trade tensions. Semiconductor inventory adjustments were also observed, partly because of weak demand for high-end smartphones.」

「In addition to the economic slowdown caused by China's structural adjustment, global demand slowed due to the slowdown in the global money supply resulting from the US monetary policy exit and the decline in trade caused by the US-China trade war. The global economy consequently slowed as inventories were adjusted. Against this backdrop, Japan also saw economic conditions deteriorate, with corporate earnings turning to declines in the second half due to lower exports.」

「However, the US monetary policy exit slowed the global money supply, while the escalation of the US-China trade war slowed global trade. The global economy showed increasing signs of weakness due to China's economic downturn and currency instability in emerging economies. The Japanese economy, which had continued to expand under Abenomics, also saw exports slow in the latter half of the period. In addition, concerns over supply caused by economic sanctions against Iran drove up crude oil prices and worsened the terms of trade, and changes in overseas factors eventually indicated that the momentum of the economic expansion was beginning to slow.」