Gloomy outlook persists for Sept. as top Korean firms maintain weak sentiment

A sign board of the Federation of Korean Industries (FKI). [Photo by Yonhap]

In a continuation of prevailing pessimism, both the manufacturing and non-manufacturing sectors of South Korea’s large businesses are upholding a negative economic outlook for the upcoming month of September.

The Federation of Korean Industries (FKI) said on Monday that its Business Survey Index (BSI) outlook for September registered at 96.9, falling short of the pivotal 100 benchmark - signifying a prevailing negative sentiment. To compile this index, the FKI conducted a survey encompassing 600 major companies by revenue in the country, excluding financial service companies. About 60 percent, or 360 out of these companies, responded to the survey.

An index exceeding 100 indicates a heightened level of economic optimism compared to the previous month, while a figure below 100 denotes a somber forecast.

“Recently, the Korean economy has been facing high external uncertainties such as deepening economic instability in China, its largest trading partner, alongside elevated exchange rates and oil prices,” said Chu Kwang-ho, head of the economy and industries division at the FKI. “To invigorate business sentiment, the government should continue deregulation and labor reform, while strengthening institutional support to boost export vitality.”

Strikingly, the BSI outlook has now languished below 100 for a consecutive span of 18 months, beginning from April of the previous year.

By industry, the manufacturing sector has grappled with an index below the benchmark for an unbroken stretch of 18 months, recording a figure of 98.9 since April of the prior year. Meanwhile, the non-manufacturing sector faced this status for two months since August, with an index of 95.1.

Nevertheless, the BSI outlook index for the manufacturing domain displayed a notable ascent of 7.1 points from August’s forecast of 91.8, marking its highest level over an 18-month period since March of the previous year when it achieved 104.5.

“The sentiment of manufacturing companies has improved somewhat due to the recent improvement in physical indicators such as a decline in inventory levels,” said the FKI. According to Statistics Korea, the inventory-to-sales ratio for the manufacturing sector in June was 111.4 percent, the lowest level since October last year at 111.2 percent.

Breaking down just the manufacturing responses, there were some positive outlooks. The index among food, beverages, and tobacco businesses stood at 121.1, among general and precision machinery and equipment businesses at 113.3, among wood, furniture, and paper businesses at 112.5, and among automotive and other transportation equipment at 106.7. The index among electronics and communications equipment businesses, which includes semiconductors, reached the benchmark of 100.0 for the second consecutive month.

Other manufacturing segments, however, had a negative outlook. The index among petroleum refining and chemicals companies was 92.9, non-metallic material and product business 92.3, metals and metal product businesses 87.0, pharmaceutical businesses 80.0, and textiles and apparel businesses 71.4, the FKI said.

In the non-manufacturing sector, the outlook was positive for scientific, technical, and business support services at 107.7 and transportation and warehousing at 103.8.

The index for leisure, accommodation, and restaurant businesses was 100.0, down 23.1 points from the previous month due to the end of the vacation season and a decline in restaurant spending, while the index for construction was 87.2, electricity, gas and water 94.1, wholesale and retail 94.1, and information and communication 94.1, the FKI said.

By sector, negative outlooks were apparent with 91.1 for financial conditions, 91.1 for profitability, 93.3 for investment, 95.8 for employment, 96.7 for exports, 99.2 for domestic demand, and 106.1 for inventories, marking a weak outlook for 12th consecutive month 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 15 consecutive months since July last year.

Meanwhile, the FKI’s BSI on the actual performance of local businesses in August came in at 93.9, marking the 19th consecutive month of decline since February last year.