Corporate Sentiment Recovers in One Month... "Thanks to Steel and Metals"

Korea Economic Research Institute, Survey Results of 600 Major Companies' Real Business Index... Impact of COVID-19 Remains

[Asia Economy Reporter Jeong Hyunjin] The corporate sentiment index, which had worsened due to increased economic uncertainty from the fourth wave of COVID-19, has slightly recovered. Heavy chemical industries such as steel and metals boosted corporate sentiment, while leisure, accommodation, and dining sectors continued to show sluggish performance.

On the 24th, the Korea Economic Research Institute under the Federation of Korean Industries conducted a Business Survey Index (BSI) on the top 600 companies by sales. The comprehensive economic BSI outlook for September rose by 5.4 points from the previous month to 100.6. A BSI above the baseline of 100 indicates a positive economic outlook, while below 100 indicates a negative outlook.

(Data provided by Korea Economic Research Institute)

This index fell to 59.3 in April last year due to the impact of COVID-19 but showed signs of recovery in the second half of last year and surpassed 100 in March. However, concerns over economic deterioration due to the Delta variant last month caused it to fall below 100. The Korea Economic Research Institute explained, "Due to the expansion of economic uncertainty caused by the fourth wave of the pandemic triggered by the Delta variant, the strength of corporate sentiment recovery remains weak and does not reach the levels seen before August."

The comprehensive economic performance index for August was 97.7, falling below the baseline of 100 due to sluggish sales from the resurgence of COVID-19 and a decrease in operating days during the vacation season.

Looking at the September outlook by industry, manufacturing recorded 101.5, and non-manufacturing 99.4. Specifically, metal and metal processed products (118.8) showed the most distinct improvement. The Korea Economic Research Institute analyzed, "Recently, the Chinese government's export restrictions on domestic steel products have led to reduced steel supply, increasing the price negotiation power of domestic steel companies." On the other hand, the leisure, accommodation, and dining industries (87.5), which are centered on face-to-face services, continued to show a worsening outlook following the outbreak of the fourth wave of COVID-19 last month, with new confirmed cases remaining above 1,000 for over a month, continuing the decline from the previous month (85.7).

The September outlook by sector showed expansion and improvement in five areas: domestic demand (100.9), exports (100.9), investment (100.0), employment (102.8), and financial conditions (100.9). However, profitability (98.0) and inventory (99.74) remained below the baseline of 100. The Korea Economic Research Institute analyzed, "Profitability has shown a worsening outlook for four consecutive months since June due to overlapping cost factors such as decreased sales from reduced demand caused by COVID-19, rising maritime freight costs, and increased fixed costs due to the Chuseok holiday in September."

Exports slightly exceeded the baseline despite increased price competitiveness from the sharp rise in the won-dollar exchange rate in August, due to demand contraction caused by the spread of the Delta variant and continued increases in maritime freight costs. Last month, U.S. retail sales decreased by 1.1% compared to the previous month, falling short of market expectations (0.3% decrease), and the Shanghai Containerized Freight Index (SCFI) surged nearly 50% compared to the beginning of the year as of the 13th.

Choo Kwang-ho, head of economic policy at the Korea Economic Research Institute, said, "As the global resurgence of COVID-19 shows signs of prolongation, the possibility of a halt in economic recovery in the third quarter of this year has increased." He added, "The government needs to focus on stabilizing the domestic economy through accelerated vaccination efforts and reduce logistics cost burdens such as maritime freight for export companies."