Among other factors, a delayed semiconductor sector recovery poses headwinds to the growth and trade outlook for these economies. ANZ Research has lowered its 2020 growth forecasts for the six tech-heavy economies. It will continue to monitor the developments and calibrate forecasts accordingly.
The complexity of inter-related supply chains means no economy can be insulated, as bottlenecks in one part translate to supply disruptions for other economies and thus the overall sector.
Supply chain disruptions are still unfolding in many industries as they face longer delivery times due to delays in receiving raw material inputs. However, such shocks are likely to be amplified in the semiconductor industry, as components are imported and exported multiple times before their final integration into electronic products.
As stated, the initial impact of the outbreak on China’s factory activity was relatively cushioned. ANZ Research understands major industry players had inventory buffers of two to four weeks ahead of the Lunar New Year holiday period. This enabled the industry to withstand initial production setbacks.
However, the virus outbreak is now well into its fourth month and even as activity in mainland China slowly normalises, the expansion of the global contagion will bring about a second wave of disruptions. The second round of hits has the potential to be far more damaging.
Fractured supply chains, especially those in heavily impacted economies such as South Korea, Japan, and Europe, will jeopardise the outlook in the first half of calendar 2020.
Even if activity increases in mainland China over the coming weeks, the industry outlook will remain dampened over the first half of 2020 as mainland China is reliant on neighbouring economies for intermediate goods.
Mainland China seems to be on the path of recovery as a host of indicators point to gradual normalisation. ANZ Research has constructed a work resumption index for key semiconductor hubs in mainland China and found the resumption rate is cumulatively well over 75 per cent. The 10 Chinese provinces included in the analysis account for more than 99 per cent of domestic output.