Business Sentiment Declines Due to Manufacturing Slowdown... Non-Manufacturing Improves Thanks to Seol Holiday

On the 26th, four days before the Lunar New Year holiday, Mangwon Market in Mapo-gu, Seoul, is bustling with citizens shopping for groceries. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Seo So-jeong] Corporate sentiment turned downward in January. The pent-up demand for electronic products caused by COVID-19 slowed down, and manufacturing weakened due to rising logistics costs. However, the non-manufacturing sector improved thanks to seasonal factors such as the Lunar New Year holiday.

According to the Bank of Korea's "January 2022 Business Survey Index (BSI) and Economic Sentiment Index (ESI)" released on the 27th, the BSI for all industries this month fell by 1 point from the previous month to 86, marking a downward trend. The BSI is an indicator showing the business conditions perceived by companies; if the number of firms responding negatively exceeds those responding positively, the index falls below 100.

By industry, manufacturing declined compared to the previous month, while non-manufacturing rose. Kim Dae-jin, team leader of the Corporate Statistics Team at the Bank of Korea's Economic Statistics Bureau, explained, "Manufacturing saw a 17-point drop in electronic, video, and communication equipment due to the slowdown in pent-up demand for electronic products and rising costs, and electrical equipment fell 11 points due to weakened demand in upstream industries such as construction and electronics."

The manufacturing business condition BSI recorded 90, down 5 points from the previous month. By company size and type, large enterprises (-6 points), small and medium enterprises (-5 points), export companies (-9 points), and domestic companies (-3 points) all declined.

The non-manufacturing business condition BSI rose 1 point from the previous month to 83. Team leader Kim said, "Non-manufacturing saw a 10-point increase in wholesale and retail trade due to sales growth from seasonal factors such as the Lunar New Year holiday," and added, "Transportation and warehousing rose 6 points due to increased cargo volume and higher shipping rates."

The February business outlook BSI rose 1 point from the previous month to 85, centered on the non-manufacturing sector. The manufacturing business outlook BSI fell 2 points from the previous month to 90, mainly due to electronic, video, and communication equipment (-11 points) and metal processing (-5 points). The non-manufacturing business outlook BSI rose 4 points from the previous month to 82, led by transportation and warehousing (+6 points) and information and communication (+5 points).

Meanwhile, the January Economic Sentiment Index (ESI) rose 1.1 points from the previous month to 105.6. The ESI is centered around a long-term average of 100; when it exceeds 100, it means that the economic sentiment of all private economic agents, including companies and households, has improved compared to the past average. The cyclical component rose 0.3 points from the previous month to 107.9.