Gwangyang Chamber of Commerce, Q2 Business Outlook Index at 79.6P

Identifying 'Raw Material Price Increase' and 'Inflation and Interest Rate Hikes' as Risks in the First Half of the Year

The Gwangyang Chamber of Commerce and Industry in Jeonnam (Chairman Lee Baek-gu) announced that the ‘2023 2nd Quarter Business Survey Index (BSI)’ conducted from February 22 to March 7 (10 business days excluding holidays) targeting about 100 local companies was recorded at 79.6 points.

This is 2.9 points lower than the 1st quarter of 2023 (82.5 points), marking the 6th consecutive quarter with a BSI below 100, indicating that the recession is expected to continue.

Nationally, the index stands at 73.9 points, while Jeonnam recorded 79.1 points.

[Photo by Gwangyang Chamber of Commerce and Industry]

The Business Survey Index (BSI) quantifies the on-site business sentiment of companies and is expressed on a scale from 0 to 200. A score above 100 means more companies expect the business climate to improve compared to the previous quarter, while a score below 100 indicates more companies anticipate deterioration.

As major risk factors significantly impacting business performance in the first half of 2023, respondents cited ‘rising raw material prices’ (38.9%) and ‘inflation and interest rate hikes’ (38.0%), followed by ‘instability in raw material supply’ (7.4%), ‘consumption slowdown due to high inflation’ (6.5%), ‘economic downturn in major export countries’ (5.6%), ‘geopolitical risks such as US-China conflicts and wars’ (2.7%), and ‘legislation of corporate burden laws’ (0.9%).

Regarding the impact of China’s transition to a with-COVID policy in December last year, reopening, and resumption of economic activities on the Korean economy, responses were ‘there are side effects but overall helpful’ (59.3%), ‘no impact’ (22.2%), ‘greatly helpful’ (9.3%), ‘helpful but overall side effects are significant’ (7.4%), and ‘side effects will be very large’ (1.8%), indicating a generally positive effect but with tempered expectations.

On the impact of China’s reopening on sales, profits, and other business performance indicators, more than half responded ‘no impact’ (55.7%), ‘positive effect expected’ (29.6%), ‘negative effect’ (11.0%), and ‘positive effect already occurring’ (3.7%).

In detail, the most anticipated positive effects were ‘increase in export volume to China’ and ‘stabilization of supply chains through procurement of Chinese parts and materials,’ each accounting for 35.3%, followed by ‘normalization of operations of companies operating in China’ (11.8%) and ‘alleviation of logistics disruptions’ (5.8%).

Reasons for expecting little or negative impact included ‘acting as a factor for rising raw material and energy prices’ (56.8%) as the majority, followed by ‘limited effect on increasing exports to China’ (37.8%) and ‘possibility of COVID resurgence in China’ (5.4%).

China’s goods production has already risen to a level higher than the trend due to expanded overseas consumption after the pandemic, leaving limited room for further increase, whereas consumption remains low, suggesting that China’s consumption could increase by more than 20% in the year following reopening.

The market expects a significant reopening effect in China. Since the Chinese government had implemented stricter COVID policies than other countries, the reversal effect could be strong, but the actual impact will only be measurable over time.

A representative of the Gwangyang Chamber of Commerce and Industry stated, “As the Korean economy enters a phase of negative growth, the consumer market is experiencing prolonged stagnation due to decreased household purchasing power caused by high inflation and high interest rates, along with increased uncertainty about the future.”

He added, “With the prolonged export recession, there is a clear polarization in export performance by item and market, and the recovery timing of export conditions will be determined by the economic situations of our main markets, the United States and China. Economic policies should focus more on ‘strengthening growth’ rather than ‘price stabilization.’”

Asia Economy Honam Reporting Headquarters, Reporter Heo Seon-sik hss79@asiae.co.kr