Growing protectionism and regulatory changes increase uncertainty over the outlook

「Domestic sales declined due to the impact of production adjustments related to the situation in the Middle East, while overseas sales declined sharply in the United States due to the impact of additional tariffs.」

「During the fiscal year under review, the stable supply of energy resources became a serious issue as geopolitical risks expanded. In addition, the outlook remained uncertain because of changes in the monetary policies of major countries and growing moves toward protectionist trade policies.」

「The US has been tightening its tariff policy, and the impact on exports, particularly automotive-related exports, is becoming apparent. Economic slowdowns continue in Europe and China. Although signs of a recovery have emerged in the global economy as a whole, the pace of recovery has slowed.」

「The global economy during the interim consolidated accounting period remained sluggish, with Russia’s invasion of Ukraine continuing, Israel expanding its offensive in the Middle East beyond Palestine to neighboring countries, the United States facing an unstable political situation ahead of its presidential election despite a resilient economy, and economic stagnation in China and Europe. Various problems showed no signs of improvement.」

「The global economy during the cumulative third quarter contracted period remained generally sluggish. As Russia’s invasion of Ukraine became protracted, Israel began retaliatory attacks on the Gaza Strip, destabilizing the Middle East and affecting the economy. The United States faced difficult policy decisions while continuing to curb inflation and looking ahead to next year’s presidential election, while economic slowdowns became more pronounced in Europe and China.」

「Against this backdrop, Russia and North Korea have drawn closer, while the conflict between Palestine and Israel has escalated into a state of war, and conditions continue to raise concerns about the expansion and prolongation of conflicts.」

「The global economy during the cumulative third quarter contracted period remained relatively firm amid continued concerns about economic deterioration resulting from soaring resource prices associated with Russia’s invasion of Ukraine and monetary tightening in Europe and the United States to curb inflation. Meanwhile, China made a 180-degree shift away from its zero-COVID policy and turned toward prioritizing the economy, further clouding the outlook.」

「With the impact of COVID-19 still lingering, divisions and tensions have intensified among authoritarian countries, countries that adhere to democracy, and other countries that prioritize their own national interests. The environment has changed significantly from a year ago, and uncertainty over the outlook is increasing.」

「In the domestic economy, the number of COVID-19 cases was brought under control and restrictions on activity were eased, putting the economy on a recovery track. However, it subsequently began to lose momentum after being hit by excessive yen depreciation caused by the widening interest-rate differential between Japan, which continued monetary easing with priority given to economic activity, and Europe and the US, which moved toward monetary tightening to contain inflation, in addition to global price inflation. In the immediate term, infections have exploded in the seventh wave, making the outlook increasingly uncertain.」

「During the fiscal year under review, the global economy generally remained on a recovery track as countries sought to restart economic activity in response to declining infections as vaccination progressed, despite the continuing impact of COVID-19. However, prices surged as supply chains were disrupted by a sharp expansion in demand accompanying the economic recovery and by tight supply and demand resulting from supply constraints caused by various factors. Since the beginning of this year, Russia's invasion of Ukraine and lockdowns in Shanghai resulting from China's continued zero-COVID policy have further intensified supply chain disruptions and price inflation, leaving the already uncertain outlook in recent years even more impossible to foresee.」

「Since the end of last year, the Omicron variant has spread widely around the world. Geopolitical risks have also increased, with signs that Russia may invade Ukraine and North Korea launching missiles frequently. This is also becoming a factor driving up resource prices, and the trend is expected to continue for some time, suggesting that unstable conditions are likely to persist.」

「However, supply chains were disrupted by the sharp expansion in demand in countries recovering economically and the shift in energy use associated with efforts to achieve carbon neutrality, causing raw material prices and other prices to surge and undermining the recovery trend.」

「During the first quarter of the fiscal year under review, the global economy diverged sharply by country in response to each country's handling of COVID-19. In countries such as the US and UK, where vaccination had progressed, restrictions on activity were eased and the economy recovered. In India, Southeast Asia, and other countries where vaccination had not progressed, infections exploded because of highly contagious variants, leading to declines as stricter restrictions on activity, including lockdowns, were imposed.」

「However, while the domestic situation has diverged depending on the progress of vaccination, a variant has become a new threat in India as it rages with extraordinary force. The outlook remains difficult to foresee, including the effectiveness of vaccines against variants.」

「In Japan, infections rose explosively over the year-end and New Year period, prompting the issuance of the second declaration of a state of emergency. With the medical system under severe strain, there is still no effective way to bring the outbreak under control. Although vaccination has begun in some countries, it is expected to take time before vaccines become widely available, and the outlook remains impossible to see.」

「More recently, infections have been spreading rapidly in Europe and the US, possibly as a result of colder weather in the Northern Hemisphere. A resurgence of infections that may be a third wave has also been seen in Japan, and the situation remains uncertain ahead of the full onset of winter.」

「During the first quarter of the fiscal year under review, the global economy suffered an unprecedented downturn as a result of the novel coronavirus disease that spread around the world from Wuhan, China.」

「However, the spread of the novel coronavirus from China to the rest of the world this year led to lockdowns in major cities in various countries and the suspension of factory operations, bringing economic activity around the world to a standstill and causing demand to disappear.」

「However, the spread of the novel pneumonia in China since the beginning of this year has cast a major shadow, and its future impact is a concern.」

「During the first half of the fiscal year under review, the US economy remained solid but lacked its momentum of an earlier period. China's economy stagnated because of trade friction with the US, while Europe's economy was weakened by the lack of progress on the UK's Brexit issue and Germany's slide into negative growth. India also slowed significantly as a result of rising unemployment and weak consumer spending, and Southeast Asia stagnated under the impact of these countries. Overall, the economy remained sluggish amid even greater uncertainty over the outlook.」

「During the first quarter of the fiscal year under review, the global economy remained broadly sluggish. Although the US continued to perform well, it lacked its previous momentum amid uncertainty over the outlook. China's economy slowed significantly as a result of its trade war with the US, and Asia, including Southeast Asia, was also weak as a result. In Europe, political turmoil exacerbated the economic downturn, while rising geopolitical risk in the Middle East increasingly cast a shadow over the global economy. As there is no prospect that these factors slowing growth will be resolved in the near term, the economy is expected to remain weak and highly uncertain for the time being.」

「The global economy during the consolidated fiscal year was strongly affected by the United States' trade negotiations. In China, the country most affected, automobile sales volumes declined due to the economic slowdown, and production also fell sharply as a result of inventory adjustments. In Europe, the economy stagnated due to the impact of trade friction with the United States, political instability and disruption associated with the UK's withdrawal from the EU. Overall, the economy appears to have moved from a pause to a downward trend.」

「During the cumulative period of the third quarter, risks centered on the United States and China were a focus of attention, and the global economy remained unstable, with stock prices fluctuating sharply around the year-end and New Year holidays. This also created a highly volatile environment for foreign exchange, with the exchange rate briefly reaching the ¥104 range to the US dollar and showing no clear direction. In China, the economic slowdown resulting from trade friction with the United States caused automobile sales volumes to decline for the first time in more than 20 years, with production also falling sharply due to inventory adjustments. In Europe, the path to the UK's withdrawal from the EU remained unclear, and the economy appeared to have entered a period of stagnation. Overall, we feel that uncertainty over the outlook has increased and conditions have reached a turning point. Meanwhile, the domestic economy remained firm but weakened somewhat, as the effects of US-China trade friction began to emerge to some extent. Going forward, uncertainty appears likely to increase further, including over concerns about a slowdown in the Chinese economy and the course of economic discussions between Japan and the United States.」

「During the cumulative period of the second quarter, the global economy changed from the strong conditions of the previous year and generally remained firm but on a downward trend. The dollar strengthened as US interest rates rose against the backdrop of strong economic conditions. This was compounded by political instability in oil-producing countries and higher crude oil prices resulting from sanctions on Iran, affecting the economies of countries with weak economic foundations. The Chinese economy also showed signs of slowing due to trade friction with the United States, while the United Kingdom and the EU lacked momentum as the path to withdrawal remained unclear. Overall, we feel that uncertainty over the outlook and downside risks are increasing.」

「However, concerns about intensifying trade friction over US trade policy are rising, making the outlook more uncertain than ever.」

「The global economy during the consolidated fiscal year generally remained strong amid moderate economic conditions in which economies did not overheat despite low interest rates, supported by the prolonged economic recovery in the United States and economic stimulus measures by governments in various countries.」

「There were also positive factors in the United States, such as the enactment of major tax cuts, and it appeared that this favorable environment would continue for some time. However, sharp stock price fluctuations triggered by strong US employment data have recently occurred, increasing uncertainty over the outlook.」

「However, political and geopolitical uncertainty appears to be increasing, with social unrest growing in the United States, North Korea repeating its provocations, a right-wing party becoming the largest party in Austria, and the issue of Catalonia's independence intensifying in Spain.」

「On the other hand, we believe the outlook remains more uncertain than before due to factors including the increased difficulty of the UK withdrawal process following the governing party's heavy defeat in the UK general election, the lack of a resolution to North Korea's provocative policies, growing concerns about the spread of terrorism as IS weakens, and rising geopolitical risks posed by China and Russia to Western countries as they perceive a decline in US leadership.」

「However, concerns about the global rise of protectionism and other factors have increased the possibility of major changes to the current regulations, and we believe the business environment is filled with an unprecedented degree of uncertainty over the outlook.」