Mid-sized Companies' Economic Outlook Shows First Rebound Since COVID-19 Spread

Junggyeonryeon Announces Results of '2020 Q4 Mid-sized Companies Economic Outlook Survey'

[Asia Economy Reporter Kim Cheol-hyun] For the first time since the outbreak of the novel coronavirus disease (COVID-19), the outlook for economic recovery among mid-sized enterprises has rebounded, according to a recent survey.

The Korea Federation of Mid-sized Enterprises (KFME) announced on the 27th that the "Q4 2020 Mid-sized Enterprise Economic Outlook Survey," conducted from August 31 to September 11 with 500 mid-sized companies, recorded an economic outlook index of 78.4 for the fourth quarter. This figure represents a 3.2-point increase compared to the previous quarter. While this rise partly reflects a base effect from the third quarter's outlook index of 75.2, which was the lowest since the survey began in Q3 2017, KFME explained that considering the ongoing spread of COVID-19, this result clearly confirms mid-sized enterprises' expectations for economic recovery.

By industry, the manufacturing sector led the overall index rebound with a 9.3-point increase to 80.1 compared to the previous quarter. The improved economic outlook in sectors such as automobiles (101.9, up 35.2 points) and chemicals (73.9, up 13.9 points) was influenced by expectations of increased demand, including 'domestic demand growth (70.0%)' and 'overseas demand growth (60.0%)'. In particular, the automobile sector cited 'overseas demand growth (87.5%)' due to the resumption of production by global automakers as the biggest factor for economic improvement.

In the non-manufacturing sector, indices for some industries such as construction (88.3, up 8.6 points) and real estate & leasing (76.6, up 4.5 points) rose, but sectors like transportation (74.4, down 13.4 points) and publishing, telecommunications & information (70.3, down 10.0 points) showed relatively weak outlooks, resulting in a slight 0.8-point decrease to 77.2 for the sector overall compared to the previous quarter.

The domestic demand outlook index rose by 1.2 points to 79.0, while the export outlook index increased by 4.9 points to 77.0. The domestic demand outlook index rose across all manufacturing sectors except electronic components (89.1, down 6.4 points), but the non-manufacturing sector recorded its lowest level since the survey began, showing a gap between industries. The export outlook index increased in both manufacturing and non-manufacturing sectors, with notable growth in construction (100.0, up 30.0 points), automobiles (95.5, up 42.4 points), and primary metals (62.7, up 7.3 points).

The operating profit outlook index rose by 3.2 points to 78.5 compared to the previous quarter, with the automobile sector (94.2, up 33.1 points) showing the largest increase. However, the transportation (72.1) and food & beverage (66.7) sectors fell by 21.1 points and 18.1 points respectively, which KFME officials attributed to reduced passenger and cargo transport and decreased dining-out demand due to COVID-19.

The manufacturing production outlook index increased by 7.5 points to 81.6 compared to the previous quarter. The automobile sector led the rise, recording its highest level since Q4 2018 at 98.1. The manufacturing production facilities outlook index rebounded for the first time since Q3 last year, driven by increases in electronic components (97.8, up 18.3 points) and primary metals (87.2, up 6.0 points).

The main management difficulties faced by mid-sized enterprises were identified as 'domestic demand slump (62.6%)', 'excessive competition among companies (33.6%)', 'rising labor costs (32.2%)', and 'export slump (24.8%)'. For all industries, the top management difficulty was 'domestic demand slump'; for manufacturing, 'export slump' was the second most cited; and for non-manufacturing, 'excessive competition among companies' ranked second.

Ban Won-ik, the full-time vice chairman of KFME, said, "Despite the uncertainty of economic recovery in the second half of the year due to the resurgence of COVID-19, the rebound in mid-sized enterprises' economic outlook may reflect a sense of urgency or desperate hope felt amid the worst economic conditions." He added, "The government should strive to realize recovery in domestic and export demand through efficient fiscal management and expanded diplomatic negotiations, while carefully examining the meaning of the differences in economic outlooks by industry to promptly implement effective tailored policies." He continued, Vice Chairman Ban emphasized, "While COVID-19 is an urgent challenge that requires collective effort to overcome, efforts to prepare for the post-crisis period must also proceed calmly and meticulously to secure a stable future for our society. I hope the government and the National Assembly will actively listen to the voices from the field expressing the worst situations and take more proactive steps to create a reasonable legal and institutional environment that fundamentally enhances corporate vitality."