Political, regulatory and operating risks in overseas markets

「Likelihood High Impact Medium → High Change in importance from the previous year Increase」

「The situation will continue to require close monitoring of the impact on the overseas economy from persistent inflation and geopolitical risks, including the prolonged Russia-Ukraine conflict and the situation in the Middle East.」

「Although a recovery in personal consumption is expected as inflationary pressures ease following decisions to cut policy rates in Europe and the United States, the situation will continue to require close monitoring for downside risks to the overseas economy, including heightened geopolitical risks from the prolonged Russia-Ukraine conflict and increasing tensions in the Middle East.」

「With regard to the global economy, the economic slowdown is becoming more pronounced under the impact of geopolitical risks, including the prolonged Russia-Ukraine conflict, the situation in Israel and U.S.-China relations, monetary tightening in Europe and the United States to contain inflation, and concerns about China’s outlook resulting from weak real estate market conditions and declining consumer sentiment. The situation will continue to require close monitoring.」

「With regard to the global economy, economic activity has been normalizing ahead of Japan as measures to combat COVID-19 advance and restrictions on activities are eased. However, the economic slowdown is becoming more pronounced under the impact of geopolitical risks, including the prolonged Russia-Ukraine conflict and U.S.-China relations, further monetary tightening in Europe and the United States to contain inflation, and a slower pace of recovery in China resulting from weak real estate market conditions. The situation will continue to require close monitoring.」

「Our group operates globally and may be broadly affected by geopolitical developments. International conditions and relations among countries can have direct impacts, including higher raw material, resource and energy prices, increased transport costs and procurement risks, and supply disruptions and delays in logistics, as well as indirect impacts, such as intensifying global inflationary pressures and effects on policy rates.」

「With regard to the global economy, economic activity has been normalizing ahead of Japan as measures to combat COVID-19 advance and restrictions on activities are eased. However, in addition to soaring material and energy prices resulting from the prolonged Russia-Ukraine situation, concerns about downside risks to the economic recovery from geopolitical risks remain, including rapid monetary tightening in Europe and the United States to contain inflation and slower economic growth resulting from the reversal of China’s zero-COVID policy.」

「With regard to the global economy, economic activity has been normalizing ahead of Japan as measures to combat COVID-19 advance and restrictions on activities are eased. However, in addition to soaring material and energy prices resulting from the prolonged Russia-Ukraine situation, concerns have emerged about downside risks to the economic recovery from geopolitical risks, including rapid monetary tightening in Europe and the United States to contain inflation and the potential slowdown in Chinese economic growth resulting from the continuation of China’s zero-COVID policy.」

「With regard to the global economy, economic activity has been normalizing as measures to combat COVID-19 advance and restrictions on activities are eased, although ahead of Japan. However, in addition to the resurgence of infections caused by variant strains, concerns have emerged about downside risks to the economic recovery from geopolitical risks, including soaring material and energy prices resulting from the prolonged Russia-Ukraine situation and the impact of restrictions on economic activity caused by lockdowns in China.」

「In addition, geopolitical risks related to Russia’s military invasion of Ukraine in February and the imposition of economic sanctions against Russia by various countries have compounded existing risks, making the outlook increasingly uncertain.」

「With regard to the global economy, it is generally recovering as vaccinations progress. However, in addition to concerns about a resurgence of infections caused by variant strains, as in Japan, risk factors continue to emerge, including surging resource and energy prices, logistics disruptions centered on ocean shipping, higher prices for materials and other items and increased procurement risks resulting from these developments, supply concerns for electronic components such as semiconductors, slower growth in the Chinese economy, and geopolitical risks centered on tensions between the United States and China, making the outlook increasingly uncertain.」

「With regard to the global economy, vaccinations against COVID-19 are progressing, particularly in developed countries, while the resurgence of infections caused by variant strains has strengthened signs of stagnation in economies that had been recovering, as in Japan. In addition to rising geopolitical risks, other risk factors coexist, including shortages of components such as semiconductors, higher raw material prices, logistics disruptions and soaring transport costs, and China’s power shortages, making the outlook increasingly uncertain.」

「With regard to the global economy, progress toward normalizing economic activity is accelerating in Europe and the United States as vaccinations advance, while infections are resurging in Southeast Asian countries and economic activity is stagnating. Differences in the pace of recovery between regions have become increasingly pronounced, and the outlook remains uncertain.」

「Our group conducts production and sales activities in China, Thailand and other parts of Asia, as well as in Europe, North America and other overseas countries. If war, civil war, armed conflict, riots, terrorism or similar events occur in these countries, they could adversely affect the group’s operating results and financial position by threatening the stability of procurement, including the prices and quantities of raw materials, as well as sales activities in the affected countries and surrounding regions.」

「In addition, a new source of tension has emerged between the United States and Iran. If this were to trigger a rise in crude oil prices or similar developments, it is expected to affect strong U.S. personal consumption and other areas, potentially becoming a major factor in a slowdown of the global economy as a whole.」

「In addition, the fourth round of U.S. tariff increases on China includes many consumer goods, creating a risk of a significant impact on U.S. personal consumption. If the U.S. economy weakens further, concerns about a global economic slowdown may intensify further.」

「However, manufacturing sentiment has deteriorated due to U.S. tariff issues involving China and the issue of the U.S.-Mexico border, while signs have emerged since June of a decline in personal consumption, which had remained strong. In China, personal consumption continues to slow in addition to the further deterioration in trade relations with the United States. Although the impact of the U.S.-China trade issue has not yet emerged in Europe, economic conditions there have begun to stagnate as a result of inventory adjustments related to Brexit measures and other factors, and concerns about a global economic slowdown are growing.」

「With regard to the global economy, uncertainty about the outlook is gradually easing as the United States and Europe maintain and continue accommodative monetary policies and China strengthens domestic policies, including infrastructure investment. However, in light of the prolonged U.S.-China trade negotiations, Brexit and the response to China’s debt problems, the sustainability of this trend should be assessed cautiously.」

「With regard to the Chinese economy, uncertainty over the outlook has increased as trade friction with the United States has intensified further, and the economic slowdown has also accelerated. Depending on future developments in the United States and China, the global economy, including Japan, is expected to be affected to some extent, raising concerns about the emergence of further geopolitical risks.」

「With regard to the Chinese economy, uncertainty over external demand has increased due to trade friction with the United States, and the economy is gradually slowing. This trade friction is expected to affect other regions as well, raising concerns that, depending on future developments, it could create new risks for the global economy.」

「Recently, the United States has imposed additional tariffs, while China and other affected countries have taken retaliatory measures. Although these developments are not expected to cause an immediate downturn in the economies of either the United States or China at this stage, depending on future developments, there are concerns that they could give rise to new trade-friction risks.」

「Meanwhile, as the United States has made its policy shift toward protectionism more explicit, the risk of trade friction is rising and has become a new concern for the global economy.」

「However, in addition to persistent geopolitical risks, depending on the extent to which policies such as the large-scale tax cuts under the Trump administration take hold in the United States and on developments such as measures by the Chinese government to stimulate domestic demand, uncertainty about the economic outlook may increase.」

「Although heightened geopolitical risks and other issues have emerged, global growth has continued, supported by Europe, where economic expansion remains driven by domestic demand, and by the solid U.S. economy, including personal consumption. Signs of a slowdown have begun to emerge in China, however, and the outlook may become even more uncertain depending on developments under the Trump administration and in the Chinese economy.」

「Although overseas economies, including Europe and China, are each showing solid growth, driven by resilient growth in the United States, the outlook may become more uncertain depending on developments under the Trump administration and in the United Kingdom.」

「The Group conducts production and sales activities overseas in Asian countries such as China and Thailand, and in countries in Europe and North America. The following risks are inherent in these countries.」

「The following risks are inherent in these countries: ① substantial fluctuations in exchange rates due to foreign-exchange policies; ② changes in export or import regulations; ③ substantial increases in labor costs, prices and other expenses; ④ disruptions to production activities due to strikes and other events; ⑤ unexpected changes in laws or regulations and international tax risks, including transfer pricing taxation; ⑥ other economic, social and political risks; and ⑦ the effects of natural disasters.」