Korea Inc. maintains gloomy outlook for May as sentiment remains bearish

[Photo by Lee Seung-hwan]

Korean businesses, both manufacturing and non-manufacturing, are maintaining their negative outlook on the economy for May.

According to the Federation of Korean Industries (FKI) on Tuesday, its business survey index (BSI) outlook for May stood at 93.8. For the index this month, 385 businesses out of 600 responded to the survey, excluding financial service companies. The BSI outlook has been below 100 for 14 months in a row now, since April last year.

A BSI above 100 indicates that companies are more optimistic about the economy than the previous month, and an index below 100 indicates a negative outlook.

By industry, the index in both manufacturing and non-manufacturing has been below 100 for 12 months since June last year, at 94.1 and 93.3, respectively. This is the first time in 31 months that both manufacturing and non-manufacturing BSIs have contracted simultaneously for 12 consecutive months, the last time being in October 2020.

“The downturn may deepen across the Korean economy if the weak economic outlook among key manufacturing industries, including semiconductors, continues for a longer-term,” said Chu Kwang-ho, head of the economy and industries division at FKI. “It is necessary to control the pace of the minimum wage hike and curb discussions on legislation that may discourage business activities.”

Breaking down just the manufacturing responses, there were some positive outlooks. The index among general and precision machinery and equipment businesses stood at 119.0, among wood, furniture, and paper businesses at 111.1, and among food, beverages, and tobacco businesses at 110.0. For metals and metal product makers, the index stood at the benchmark of 100.0.

Other manufacturing segments, however, had a negative outlook. The index among electronics and communications equipment businesses was 72.2, textiles apparel businesses 76.9, pharmaceutical businesses at 83.3, base metal businesses at 83.3, petroleum refining and chemicals companies at 88.6 and motor vehicles & machinery companies was 89.5.

The outlook among electronics and communications equipment businesses, which includes semiconductors, hit the lowest in 31 months, since bottoming at 71.4 in October 2020.

Among non-manufacturing industries, the index among leisure and hospitality was the only segment that was positive at 107.1, while the index among electricity, gas and water businesses had the weakest outlook at 82.4. The negative outlook among electricity, gas and water businesses is likely due to the pending rate hike in the second quarter, FKI said.

By sector, negative outlooks were apparent with 93.0 for investment, 93.2 for profitability, 93.5 for financing, 94.3 for exports, 96.6 for domestic demand, 97.1 for employment and 104.4 for inventories, marking a weak outlook for eighth consecutive months since October. An inventory index above 100 indicates a negative outlook, as it indicates excess inventory.

Domestic demand, exports and investment continued with a sluggish outlook for 11 months since July.