SME Business Outlook Rebounds After 2 Months... Construction Industry Still 'Gloomy'

Korea Federation of SMEs Announces 'February 2021 Small Business Economic Outlook Survey'... 4.3p Increase

Namdong National Industrial Complex. The photo is unrelated to specific expressions in the article.
Photo by Asia Economy DB

[Asia Economy Reporter Junhyung Lee] As the spread of the novel coronavirus infection (COVID-19) slows down and expectations for economic stimulus measures grow, the outlook for small and medium-sized enterprises (SMEs) has rebounded for the first time in two months next month.

The Korea Federation of SMEs announced the results of the 'February 2021 SME Business Outlook Survey' on the 28th. According to the survey, the Small Business Health Index (SBHI) for business outlook this month rose by 4.3 points (p) from the previous month to 69.3, but fell by 11.9p compared to the same month last year. An SBHI above 100 means that more companies view the economic outlook positively than negatively. The survey was conducted from the 15th to the 22nd of this month, targeting 3,150 SMEs.

This upward trend appears to have been influenced by improvements in domestic sales, exports, operating profits, and financial conditions compared to the previous month. Although the employment level dropped by 2.9p to 97.2 compared to the previous month, it rose by 0.2p compared to the same month last year, suggesting a slight improvement in employment outlook as well.

However, the overall economic outlook for both manufacturing and non-manufacturing sectors is expected to worsen compared to the average of the past three years. Comparing this month’s SBHI with the average SBHI for the same month over the past three years, the manufacturing sector showed declines in outlooks for 'overall economy,' 'production,' 'domestic demand,' 'exports,' 'operating profits,' and 'raw materials,' while all categories in the non-manufacturing sector showed deteriorated outlooks.

Additionally, the survey revealed that although SBHI rose in both manufacturing and non-manufacturing sectors, only the construction industry within the non-manufacturing sector showed a downward trend. Manufacturing rose by 1.3p from the previous month to 76.6, and non-manufacturing rose by 6.0p to 65.6. Within non-manufacturing, the SBHI for both service and construction industries was 65.6; however, the service sector increased by 7.4p from the previous month, while construction decreased by 1.2p. In manufacturing, 12 industries including 'other transportation equipment' and 'primary metals' showed increases, whereas 10 industries including 'medical substances and pharmaceuticals' and 'paper and paper products' showed declines.

68.7% of SMEs cited 'domestic demand slump' as the business difficulty they experienced last month, followed by 'rising labor costs' (43%), 'excessive competition among companies' (35.5%), and 'rising raw material prices' (22.6%).

Meanwhile, the average operating rate of small and medium manufacturing firms in December last year was 69.9%, down 0.3 percentage points from both the previous month and the same month last year. The average operating rate of general manufacturing was 69.3%, down 0.3 percentage points from the previous month, while innovative manufacturing rose by 1.4 percentage points from the previous month to 76%.