Economy

Half of Apple’s 200 top suppliers have facilities in and around Shanghai, where Covid-19-related lockdowns and traffic restrictions are disrupting a swath of business activities, a Nikkei Asia analysis has found.More than 70 companies own manufacturing plants in Jiangsu province that directly supply the US tech group, according to an analysis of Apple’s latest available supplier list. The majority of these are in Kunshan and Suzhou, two cities near Shanghai. A further 30 or so Apple suppliers have facilities in Shanghai itself, the latest hotspot of China’s Covid surge.These suppliers range from major iPhone assembler Pegatron and iPad maker Compal Electronics to makers of components such as displays, printed circuit boards, thermal parts, batteries and acoustic components.The supplier list is normally released every year and covers 98 per cent of Apple’s spending on its products’ materials, manufacturing and assembly. The 2021 edition highlights how the financial hub of Shanghai is also becoming critical to the global tech and automotive supply chains.Most of these suppliers, moreover, serve not only Apple but also other global tech giants, including Google, Microsoft and Intel, as well as domestic ones, such as Huawei, Xiaomi and Oppo.Foreign and domestic businesses have warned that prolonged lockdowns could put China’s economic growth at risk and deal a huge blow to the automobile and tech industries.Chinese authorities have taken notice. Vice-premier Liu He said this month the country would work to stabilise industrial development and supply chains, and instructed local governments not to block transportation for key logistics.Local governments in Shanghai and Suzhou have also put hundreds of key electronics, automotive and medical suppliers on a so-called white list and said they will be able to gradually resume some manufacturing and logistics activities. But China is officially committed to a zero-Covid policy, and many suppliers with production facilities in the region fear it will take months for normal operations to resume.“We think the impact is much more serious than the power outage last year as it involves a wide range of supply chains,” said Paul Peng, chair of AU Optronics (AUO), a key display maker, referring to government-mandated electricity rationing in the area in September last year. “The disruption is not to a single company or industry, it’s a global supply chain incident that could lead to a supply chain cut-off in the worst-case scenario,” he added.AUO, which supplies HP, Dell, Asus and Tesla, operates production facilities in Kunshan and Suzhou. Peng said it would take “at least another quarter” before normal production resumed. “Some very basic materials such as carton boxes are in serious shortage. Truck drivers who are delivering all the materials and components are in great shortages too,” he said.Delta Electronics, a leading maker of power management solutions, has been placed on Suzhou’s white list but could still see its production dented 20 per cent in April in a worst-case scenario.“The situation in May and June should improve enough to offset the impact in April, but it will depend on the production resumption progress of the suppliers across the Greater Suzhou area,” said Cheng Ping, chief executive.A source at a Japanese electronics component supplier to Apple told Nikkei its facilities in Suzhou had halted operations owing to severe logistics issues in Suzhou and Shanghai. Its own materials and component suppliers had also suspended production, the source added.Ports and airports in Shanghai, meanwhile, are operating under stringent Covid-related controls and traffic restrictions, creating tremendous challenges for businesses, according to multiple logistics service providers and suppliers.

“The logistics in the Yangtze River Delta, including Shanghai, Suzhou, Kunshan, Taicang to Wuxi are basically stagnant. Even if people could travel with permits, it will be very [difficult] to arrange enough trucks,” one manager at a logistics company told Nikkei.Some are already warning that the current chaos could affect this year’s holiday shopping season.“May and June will be crucial for many consumer electronics brand vendors. If production does not ramp up in time for goods to be shipped via ocean cargo, there is a chance they could miss the Christmas holiday sales season in Europe and the US due to congestion at ports — unless they ship by air, which is much more expensive,” said one executive at an important HP supplier.Ivan Lam, an analyst at Counterpoint Research, said the lockdowns would affect not only supplies and production but also demand.“China likely will still continue its zero-Covid policies, as the vaccination rate among elders is quite low,” Lam said. “On the demand side, we see a substantial slowdown in China’s consumer spending since the lockdown in Shenzhen earlier this year. It’s likely that we could further revise down a couple of percentage points again for smartphone market expectations for this year.”Apple did not respond to a request for comment.A version of this article was first published by Nikkei Asia on April 20. ©2022 Nikkei Inc. All rights reserved. More

By Joyce Lee and Heekyong YangSEOUL (Reuters) -Samsung Electronics Co Ltd reported a 51% rise in quarterly profit on Thursday, buoyed by robust data centre demand for high-margin memory chips, but cautioned that component shortages will likely continue in the second half.The world’s top memory chip and smartphone maker said demand for server chips is expected to be relatively solid in the second half, but the pace at which component shortages are resolved will need constant monitoring.”While uncertainties related to the macroeconomic environment and geopolitical issues are likely to persist, the company will prioritize increasing the portion of advanced processes for components,” it said in a statement.Samsung (KS:005930)’s operating profit rose to 14.1 trillion won ($11.1 billion) for the quarter ended March 31, from 9.38 trillion won a year earlier. That was its highest first-quarter profit since 2018, and in line with the company’s estimate earlier this month. Profits at its chip business rose to 8.45 trillion won, more than double the 3.36 trillion won a year earlier, fueled by record sales of server chips in the quarter. Memory chip rival SK Hynix on Wednesday forecast solid demand for server chips but warned that sales to smartphone and personal computer customers was softening due to COVID-19 led lockdowns in China.In Samsung’s non-memory chip business, the rising price of older chip models as well as improving yields at its chip contract manufacturing business lifted its earnings compared with the previous quarter, analysts said. Operating profit at Samsung’s mobile and network business came in at 3.8 trillion won in the first quarter, slipping from 4.4 trillion won a year earlier. Samsung ramped up production of its mid-to-low-end Galaxy A series in the quarter to compete aggressively in the segment, while launching its flagship Galaxy S22 series. It raised its smartphone market share to 24% during the period from 22% a year earlier, said Canalys analyst Sanyam Chaurasia. Overall revenue rose 19% to a record 77.8 trillion won. The company said it expects chip demand from server clients to remain relatively solid in the second quarter, and the smartphone market is projected to continue to grow in the second half of the year.However, component shortages and lack of capacity availability at its chip contract manufacturing facilities are also expected to continue. Analysts said Samsung’s recent focus on selling more high-margin memory products to prioritise profitability over volume would ultimately limit shipments and help boost DRAM prices later in the year, as would the limited increases in chip production capacity due to delivery delays in chipmaking gear. Samsung shares traded down 0.6% in early trade on Thursday, compared with a flat wider market.($1 = 1,266.2800 won) More

TOKYO (Reuters) -Japanese factories saw output rise for the second straight month in March as strong global demand for high-tech chips helped to ease some doubts that are weighing on the country’s economic outlook.After struggling to stage a convincing recovery from the coronavirus pandemic, the world’s third-biggest economy is facing pressure from Russia’s war in Ukraine, high energy and commodity prices and strict Chinese lockdown measures that are hurting demand.Factory output expanded 0.3% in March from the previous month, official data showed on Thursday, as growing production of items such as those of semiconductors offset a drop in motor vehicle output.That meant output growth slowed from February, when it grew sharply by 2.0%. The increase was weaker than a 0.5% gain forecast in a Reuters poll of economists.Separate data showed retail sales were stronger than expected after the government lifted pandemic curbs, rising 0.9% in March from a year earlier, which was bigger than the median market forecast for a 0.4% rise.”Personal consumption will likely pick up ahead, but supply constraints are going to affect output,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.”Output and especially that of motor vehicles will likely be impacted by the prolonged impact of the semiconductor shortage as well as the lockdown in Shanghai.”The fragile nature of Japan’s recovery has prompted the nation’s central bank to remain resolute in its ultra-easy stance, moving against the tide of tighter policy embarked on by many major economies. At a two-day policy meeting concluding later on Thursday, the Bank of Japan is widely expected to maintain ultra-low interest rates and warn of heightening risks to the economy from soaring raw material costs.Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expected output to advance 5.8% in April, followed by a 0.8% decline in May.Japan’s manufacturing sector has so far remained resilient in the face of uncertainty posed by the Ukraine situation that has led to a surge in commodity prices. A rapid weakening of the yen has also saddled exporters with higher input costs.But private consumption, which accounts for more than half of gross domestic product, has yet to fully shake off the drag from the pandemic, after a record Omicron surge delayed its recovery. More

BENGALURU (Reuters) – The global economy will expand more slowly than predicted three months ago, according to Reuters polls of over 500 economists, who said higher commodity prices and an escalation in the Russia-Ukraine war could prompt another downgrade.Already under pressure from monetary tightening as central banks try to stem rising inflation, world economic output was dealt a body blow when Russia invaded Ukraine on Feb. 24, sending commodity prices through the roof and triggering waves of economic sanctions.When asked to name the biggest two downside risks to the global economy this year, the top picks of roughly 200 respondents were persistently higher commodity prices and a further escalation in the Russia-Ukraine war.They were closely followed by supply chain disruptions – exacerbated by the Russian invasion – followed by second-round inflation effects and over-eager central bankers. GRAPHIC: Reuters poll – Global economic outlook https://fingfx.thomsonreuters.com/gfx/polling/myvmnybnepr/Reuters%20poll%20-%20Global%20economic%20outlook.png “MASSIVE SUPPLY SHOCK”Even without those future risks, median forecasts for global growth collected in this month’s Reuters polls on over 45 economies were chopped to 3.5% this year and 3.4% for 2023 from 4.3% and 3.6% in a January poll.That compares to an International Monetary Fund prediction of 3.6% growth in both years.”Even before the Russia-Ukraine confrontation escalated, central banks were fighting a severe upsurge in inflation that reflected the imprint of the pandemic, stressed global supply chains, and tightening labor markets,” said Nathan Sheets, global chief economist at Citi.”But now, in addition, spillovers from Ukraine have brought a massive supply shock, which has prompted us to further raise our projections for inflation and mark down our outlook for global growth.” The experts upgraded their inflation forecasts for nearly all the economies in question, underscoring a view that inflation will remain high and above most central banks’ targets for longer than previously thought.With soaring inflation gripping much of the world, only 13 of the 25 top central banks polled on were expected to get inflation down to target by end-2023, a drop from 18 in the January poll.Most were expected to go ahead with plans to tighten policy to counter inflation despite the risk of curbing growth or even, according to indicators in some markets, triggering recessions.”Just wrestling the inflation dragon to the ground looks to be a difficult task. Doing it while dodging recession risks will require adroit policymaking and, likely, some good luck as well,” Citi’s Sheets added. GRAPHIC: Reuters poll – 2022 Global GDP growth revisions https://fingfx.thomsonreuters.com/gfx/polling/xmvjoybodpr/Reuters%20Poll-%202022%20Global%20GDP%20growth%20revisions.png RISING RATESIn the U.S., the world’s largest economy, the Federal Reserve was expected to raise interest rates by at least another 150 basis points before year-end, with growth expected to slow to 3.3% this year and 2.2% next, down from the 3.6% and 2.4% predicted last month. [ECILT/US]Economists gave a 25% probability of a U.S. recession in the next 12 months and 40% within two years.Economic growth in the euro zone was expected to be 2.9% this year and 2.3% in 2023, down from 3.8% and 2.5% predicted a month ago. Poll medians also showed the European Central Bank raising its deposit rate this year, with a 30% probability of a recession within 12 months. [ECILT/EU]”The more important point is that, with or without a recession, the performance of the world’s major economies is likely to be weaker than most currently anticipate,” said Neil Shearing, group chief economist at Capital Economics.”Developments in the first quarter have only reinforced our belief that 2022 will be a year in which most economies struggle.”In Britain, the cost-of-living crisis is likely to have a severe impact on economic growth this year but the Bank of England is forecast to press ahead with raising borrowing costs all the same. [ECILT/GB]As an outlier, the Bank of Japan, which has not managed to get inflation up anywhere near its target for decades, was not expected to tighten policy anytime soon, despite the rising tide of global prices. [ECILT/JP]That interest rate scenario has had a dramatic effect on the yen which sank to a 20-year low against the dollar last week.Growth estimates were downgraded for most Asian economies polled as China’s economic setbacks have darkened the outlook for countries in its orbit, from South Korea to Thailand. That was likely to have an economic impact not just for the region but also for the world at large.(For other stories from the Reuters global long-term economic outlook polls package) More

Inflation in most countries has soared to multi-year highs, driven by a rebound in economic activity and a further straining of rampant supply chain disruptions.While economists were expecting inflation to moderate this year with signs of supply shocks easing, Russia’s invasion of Ukraine and recent lockdowns induced by a resurgence in COVID-19 cases in parts of China, a major manufacturer, have derailed much of that optimism.Analysis of global inflation data and the New York Federal Reserve’s Global Supply Chain Pressure Index (GSCPI), which gauges supply distortions, showed there is a stronger correlation now between supply chain disruptions and inflation than before the pandemic, particularly in the UK, the euro zone and the United States.But there is a significant lag: while the GSCPI rose to its highest in Q4 2021, inflation was still months away from a peak.That has made predicting inflation an even greater challenge for economists whose predictions have consistently been on the rise.”I don’t think the supply chain disruptions are fully reflected in some of the inflation forecasts and that’s probably the reason why we might see forecasts go higher in the coming months,” said Brendan McKenna, international economist at Wells Fargo (NYSE:WFC).”I still think there’s some catch-up to be done on that front. Banks and even central banks didn’t really fully appreciate the supply chain disruptions we saw last year and might continue to see this year, partly a factor of the Russian-Ukraine crisis.” GRAPHIC: Global Supply Chain Pressure Index vs inflation https://fingfx.thomsonreuters.com/gfx/polling/movanowjxpa/GSCPI%20vs%20inflation.png Forecasts of 46 economies polled for inflation this year are now 3.9 percentage points higher on average from late 2020, the first time inflation forecasts for 2022 were sought.In addition to medians, ranges have also moved upward. For 2023, forecasts have increased by 1.1 percentage points on average so far since early 2021. Going by the consistently increased forecasts over the past year there are likely to be further rises. “People are slow to see these things because they don’t necessarily look far enough upstream towards the sources of production, nor do they necessarily account for the delays in transit,” said Willy Shih, professor of management practice at Harvard Business School and an expert on supply chains. “There is a time lag in all these supply chains depending on how far upstream you go, but you won’t feel it until many weeks, or sometimes months, later.” GRAPHIC: Reuters Poll – 2022 inflation forecast revisions https://fingfx.thomsonreuters.com/gfx/polling/gkvlgkbxnpb/Reuters%20Poll-%202022%20inflation%20forecast%20revision.png Supply chain disruptions and their impact on inflation remain largely out of central banks’ control, yet many have begun withdrawing ultra-loose monetary policy to control soaring inflation. Projections so far show inflation in 29 of 39 economies surveyed with stated central bank targets will remain above mandates this year and 16 next year. To further complicate matters, policymakers must tackle sticky inflation with a high risk of a significant economic slowdown – in some cases recession – lingering in the background. [ECILT/WRAP]”Inflation tends to be a slow killer…. It may take a little bit more time before it really feeds into demand destruction and then the economy starts to slow down,” said Elwin de Groot, head of macro strategy at Rabobank. “I find it hard to accept growth does not slow because of inflation. That’s impossible. “Inflation is no longer going to be as structurally low as we’ve seen after the global financial crisis and the past 10-15 years of slower inflation than central banks were aiming for; those times may be behind us.”(For other stories from the Reuters global long-term economic outlook polls package) (Reporting and analysis by Prerana Bhat, Milounee Purohit, Swathi Nair, Sarupya Ganguly, Anant Chandak and Arsh Mogre; Polling by the Reuters Polls team in Bengaluru and bureaus in Buenos Aires, Istanbul, Johannesburg, London, Shanghai, and Tokyo; Editing by Jonathan Oatis) More

OTTAWA (Reuters) -Canada’s economy is overheating, creating domestic inflationary pressures, and higher interest rates are needed to cool things down, the head of the Bank of Canada said on Wednesday.Governor Tiff Macklem, testifying to a Senate committee, said interest rates may need to go above the neutral rate range – currently estimated to be between 2% and 3% – for a period of time to get inflation back to target.”If you boil it down, the economy is overheating. That’s creating domestic inflationary pressures. We need to cool growth, to cool inflation,” Macklem said. “It’s going to be delicate,” he added. “But we do need to raise interest rates to moderate that spending growth and get inflation back to target.”The Bank of Canada increased interest rates by a rare 50 basis points earlier this month, and Macklem has signaled that the central bank will likely consider a second oversized hike at its next meeting, on June 1.How high rates go will depend on how the economy responds to increases and on the inflation outlook, Macklem reiterated.”It’s possible that we may have to go above the neutral rate for a period of time to return inflation to target, but it’s a bit above 2 or 3%, it’s not 7% or 8%,” he said, when pressed on whether rates could return to levels seen decades ago. “That reflects the fact that inflation expectations are well anchored,” he added. Canada’s inflation rate hit a 31-year high of 6.7% in March. More

The proposal, which still needs to be cleared by the Senate, must be completely approved by May 16 or it will become invalid.Originally, the measure allowed only the granting of an extraordinary benefit to complement Auxilio Brasil from December 2021 to December 2022.The lawmaker who leads the bill, a former minister in Jair Bolsonaro’s government Joao Roma, accepted a change in the document to authorize the permanent payment of the welfare program.The bill was supported even from members of the opposition, who celebrated its approval, but stressed the feeling that the government had only backed the measure because of October’s election, when far-right president Bolsonaro will seek re-election.”Brazil aid or electoral aid? It is absolutely clear that the interest is electoral,” said opposition lawmaker Maria do Rosario, from leftist Workers Party.Earlier, Senate’s president Rodrigo Pacheco said that is likely that the measure will be approved.($1 = 4.9642 reais) More

Rishi Sunak has hinted that he could perform a U-turn and introduce a windfall tax on UK oil and gas companies unless they ramp up investment in new energy projects.The UK chancellor has long argued against such a levy, which is backed by the Labour party, on the grounds that it would deter investment in the North Sea and in green energy projects.But he is under growing pressure to offer more help to families struggling with the cost of living crisis and on Wednesday suggested that he might reconsider his position.Speaking to the online parents’ forum Mumsnet, the chancellor said he had not introduced a windfall tax in last month’s Spring Statement, despite rocketing profits in the oil and gas sector, because he wanted companies to invest.He highlighted the announcement by Shell this month that it planned to invest £20bn to £25bn in the UK energy system over the next decade and had earmarked more than 75 per cent for low- and zero-carbon projects, including offshore wind, hydrogen and electric vehicle infrastructure.But he added: “What I would say is that if we don’t see that type of investment coming forward, and companies are not going to make those investments in our country and energy security, then of course that’s something I would look at and nothing is ever off the table in these things.”Sunak’s refusal to contemplate a windfall tax on the North Sea oil and gas companies, at least so far, has left him exposed to Labour criticism that he is not doing enough to help households facing higher energy and food bills.This week, Prime Minister Boris Johnson told his ministers to come up with ideas to cut the cost of living that would not incur extra costs for the Treasury. A cabinet meeting on Tuesday spawned a series of ideas including the removal of the need for an annual MoT test for cars, cuts to health and safety laws and a unilateral cut in tariffs on food imports, a policy opposed by Anne-Marie Trevelyan, international trade secretary.Sir Keir Starmer, Labour leader, said Johnson was the “Comical Ali of the cost of living crisis” because he was failing to come up with significant measures to help households.Starmer told MPs in the Commons: “North Sea oil producers are making so much unexpected profit that they call themselves a ‘cash machine’. That cash could be used to keep energy bills down.”However, other senior government figures were sticking to the official government line that a windfall tax on the oil and gas sector would be a bad idea.Dominic Raab, justice secretary, on Wednesday called the idea “disastrous”, while Johnson rejected it at Wednesday’s prime minister’s questions as a “tax on business”. More