Mid-sized Companies' Q4 Economic Outlook Remains Gloomy

Economic Outlook Index Falls 5.7 Points Compared to Previous Quarter

[Asia Economy Reporter Kim Cheol-hyun] The economic outlook for mid-sized companies in the fourth quarter has declined for the first time this year compared to the previous quarter. It appears that signs of the global economic downturn are spreading to mid-sized companies as well.

The Korea Federation of Mid-sized Enterprises announced on the 6th that the "2022 Q4 Mid-sized Enterprise Economic Outlook Index" recorded 94.9, down 5.7 points from the previous quarter. The manufacturing sector outlook index (93.0) and non-manufacturing sector outlook index (96.5) both fell by 7.0 points and 4.7 points respectively compared to the previous quarter, and export and domestic demand forecasts also dropped to negative figures. A representative from the Federation explained, "Under the severe global economic situation, anxiety in the management field of mid-sized companies seems to be expanding," adding, "With ongoing supply chain instability and high exchange rates, expectations for resolving major management difficulties cited by mid-sized companies, such as rising raw material prices, labor costs, and sluggish domestic demand, are likely to shrink further."

The survey was conducted from August 29 to September 14, targeting 620 mid-sized companies. If the outlook index exceeds 100, it means more companies expect a positive outlook for the next quarter compared to the previous one; if below 100, the opposite is true. Looking at manufacturing, the outlook index for electronic components, including semiconductor and display-related companies, fell by 16.9 points to 91.7. Although positive outlooks had been maintained since Q3 2020, it shifted to a negative outlook after nine quarters, marking the second-lowest figure ever. The chemical sector index recorded 84.6, showing the second-largest decline in manufacturing, mainly among petrochemical companies related to ethylene, due to rising import costs. Negative outlooks among cosmetics companies also expanded significantly as sales in the Chinese market decreased. The food and beverage sector (95.3) fell 6.4 points from the previous quarter, reflecting seasonal factors during the winter off-season, mainly among ice cream and beverage manufacturers.

In the non-manufacturing sector, the publishing, telecommunications, and information services sector (90.6) experienced the largest drop (10.9 points↓), centered on terrestrial and cable broadcasting companies. The transportation sector maintained a positive outlook (101.5) but recorded a 5.0-point decline, larger than the overall non-manufacturing outlook index, mainly among port handling and maritime transport companies.

Mid-sized companies forecast both export and domestic demand conditions to be unfavorable in the fourth quarter. This is the first simultaneous decline in export and domestic demand outlook indices in three quarters. The export outlook index fell 4.2 points to 96.2. The electronic components sector index (93.5) dropped by more than double digits (11.7 points↓) compared to the previous quarter, pulling down the overall index. Within the electronic components sector, negative outlooks were significant not only for semiconductors but also for companies related to TV, speakers, and mobile phone components. The domestic demand outlook index was positive for the automobile (105.1), food and beverage (103.1), and transportation (101.5) sectors, but the overall index fell 4.9 points from the previous quarter to 96.6.

The operating profit outlook index decreased by 1.6 points from the previous quarter to 94.1. Within manufacturing, the automobile sector (101.3, up 6.2 points) and the primary metals sector (84.9, down 7.3 points) showed significantly divergent outlooks. The Federation explained that the automobile sector's positive outlook was due to expected sales increases from exchange rate rises, while the primary metals sector was burdened by rising import raw material prices. In the non-manufacturing sector, the wholesale and retail sector (93.2) experienced the largest decline (5.7 points↓), centered on CNG charging and petroleum wholesale businesses.

The financial condition outlook index slightly declined to 95.1 from 97.7 in the previous quarter, mainly due to significant drops in the food and beverage (82.8, down 18.9 points) and electronic components (93.1, down 9.8 points) sectors. The production scale outlook index for manufacturing mid-sized companies (100.4), which indicates expected production increase or decrease compared to the previous quarter, slightly fell by 1.6 points but maintained a positive outlook above 100 for five consecutive quarters.

The facility investment scale outlook index for manufacturing mid-sized companies recorded 98.9, a slight decrease of 1.5 points from the previous quarter, but the indices for electronic components (101.4), automobiles (100.0), and chemicals related to secondary battery raw materials such as cathode active materials, caustic soda, and electrolyte organic solvents (105.8) were confirmed as positive. The top management difficulty in manufacturing was the burden of rising raw material costs due to exchange rate increases (59.6%), while in non-manufacturing, rising labor costs (40.9%) were cited.

Lee Ho-jun, Executive Vice Chairman of the Federation, emphasized, "It is noteworthy that despite the confirmed negative outlooks across manufacturing and non-manufacturing sectors, most mid-sized companies still expect to increase their facility investment scale." He added, "To accelerate innovation and investment by mid-sized companies, proactive financial support such as extending loan maturities and repayment deferrals, as well as policy support to alleviate management difficulties caused by supply chain instability, rising raw material prices due to exchange rate hikes, and chronic labor cost increases, should not be spared."