High Interest Rates and Raw Material Shocks... Construction Economy Also Plummets in June

Recorded 64.7, down 18.7p compared to the previous month

Overall CBSI Trend

The construction sentiment index dropped sharply last month due to a combination of negative factors such as interest rate hikes, rising raw material prices, and instability in the real estate market.

The Korea Construction Industry Research Institute announced on the 4th that the Construction Business Survey Index (CBSI) for last month was 64.78, down 18.7 points (p) from the previous month. When the CBSI falls below the baseline of 100, it means that more companies view the current construction market pessimistically than optimistically.

The CBSI fell by 16.1p in April compared to the previous month, then rose again by 13.9p in May, showing signs of recovery. However, the institute analyzed that the index plunged recently due to the sharp rise in oil and raw material prices and growing concerns about an overall economic slowdown caused by interest rate hikes.

At the beginning of last month, an eight-day strike by the Korean Confederation of Trade Unions' Cargo Solidarity also caused disruptions in the supply of ready-mixed concrete and rebar at some construction sites, which appears to have contributed to the index decline.

Researcher Park Cheol-han said, "The 18.7p drop is the largest decline in two years and five months since January 2020, when concerns about an economic downturn due to the COVID-19 pandemic caused a 20.5p fall," adding, "The index itself is the lowest in two years and two months since April 2020, when it was 60.6." He explained, "This is the worst situation in the past two years. The burden of material prices has increased, and with the US interest rate hikes, market anxiety has surged rapidly, which is why the index fell."

Meanwhile, the July outlook index is expected to rise 8.9p from June to 73.6. Researcher Park said, "Typically, July sees a decline in construction activity due to the summer monsoon season, causing the index to drop, but the rebound in the outlook index seems to be a base effect because the June index was very low. However, since the index is only in the 70s, difficulties in the construction industry are expected to continue this month as well."