Reflecting Expectations for Supply Chain Stability Amid China's Full-Scale Reopening
The results of the second-quarter business outlook survey for companies in the Changwon area of Gyeongnam showed figures higher than the baseline.
The Changwon Chamber of Commerce and Industry announced the results of the "2023 Second Quarter Changwon Area Business Outlook Survey," conducted from March 6 to 29 targeting manufacturing companies in the Changwon area. Among the 156 companies that responded, the Business Survey Index (BSI) was recorded at 100.6, exceeding the baseline (100) for the first time in four quarters.
With China's reopening gaining momentum, it is interpreted that some of the business and supply chain instability with China will be alleviated, and expectations of economic improvement are reflected mainly in automobile parts and defense machinery sectors.
However, given the ongoing triple challenges of high exchange rates, high inflation, and high interest rates that are deteriorating corporate profitability, there appear to be limitations in predicting a full economic recovery.
By category, the outlook BSI for production activities such as sales (106.4) and workplace/factory operation (101.9) exceeded the baseline, but indices for supply chain stability (93.6), facility investment (88.5), and operating profit (87.8) fell below the baseline. The continuation of the triple challenges (high interest rates, high exchange rates, high inflation) combined with economic uncertainties in major countries is expected to make securing profitability difficult and lead to a decrease in facility investment.
By industry, the sector with the most positive outlook for the second quarter is transportation equipment manufacturing, including automobile parts (132.1). Additionally, machinery equipment manufacturing (102.1) and other transportation equipment manufacturing (100.0) showed stable results. The remaining sectors, steel and metal manufacturing (90.6) and electrical and electronics manufacturing (73.1), fell below the baseline and presented a negative outlook.
Due to expected increases in domestic sales and export performance of domestic finished vehicles, production is anticipated to rise, leading to a positive outlook for the second quarter centered on automobile parts and the defense industry. Conversely, steel and metal product manufacturing, which has a high import ratio, and electrical and electronics manufacturing, which is experiencing worsened domestic and international consumer sentiment and seasonal off-season effects, continue to show a negative outlook for the second quarter of 2023, following the previous quarter, amid rising international raw material prices and an upward exchange rate trend.
When asked about this year's sales targets compared to last year, the highest proportion (37.8%) set their targets higher than last year. In contrast, the largest proportion (37.2%) set their operating profit targets lower, indicating a more conservative approach to profit targets compared to sales targets.
By company size, 51.2% of large and medium-sized enterprises and 33.4% of small and medium enterprises set sales targets higher than last year, suggesting that large and medium-sized enterprises have relatively higher expectations for this year's sales performance compared to small and medium enterprises.
The risk factors expected to affect business performance in the first half of the year were identified as "rising raw material prices" (38.9%) and "rising inflation and interest rates" (24.7%). Following these were "consumption slowdown due to high inflation" (13.2%), "economic recession in major export countries" (11.2%), "instability in supply of raw and subsidiary materials" (11.0%), "geopolitical risks" (6.7%), and "others" (4.2%).
A representative from the Changwon Chamber of Commerce and Industry stated, "Although increases in sales and factory operating rates are expected due to the recovery of key local industries such as automobiles and defense machinery, the continuation of high interest rates and high exchange rates, along with the slow recovery of a stable supply chain, is expected to result in operating profit levels falling short. Therefore, many companies appear to be setting their operating profit targets more conservatively compared to their sales targets."
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