"Semiconductor Industry Recovery Slow"... Manufacturing Sentiment Weak in June

Increase in Negative Responses in the Second Half of the Year

Although expectations for a recovery in the sluggish economy in the second half of the year are growing and consumption is picking up, the manufacturing business sentiment in South Korea was weak this month as the semiconductor industry, a key sector, is recovering more slowly than expected.

According to the June Business Survey Index (BSI) released by the Bank of Korea on the 29th, the BSI for business conditions across all industries remained unchanged at 76 this month compared to the previous month. This index reflects business owners' judgments and outlooks on current business conditions, with values below 100 indicating poor business conditions.

By sector, the manufacturing BSI was 73, the same as the previous month. Among detailed sectors, electronics, video, and communication equipment fell by 7 points. The delay in semiconductor price and export recovery, along with weak business conditions for semiconductor design companies, caused the BSI to decline. In contrast, electrical equipment rose by 12 points due to increased cable demand driven by global infrastructure investment, and chemicals and chemical products improved by 5 points as demand for basic chemical products increased.

By company size, large enterprises rose by 3 points, while domestic companies remained unchanged from the previous month. Small and medium-sized enterprises fell by 6 points, and export companies declined by 3 points.

The BSI for non-manufacturing industries was 77, down 1 point from the previous month. Professional, scientific, and technical services dropped by 11 points due to reduced customer demand caused by sluggish upstream industries, and the electricity, gas, and steam sector fell by 10 points affected by frozen electricity rates leading to deteriorated profitability and seasonal off-peak energy demand.

Retail and wholesale trade declined by 3 points due to rising raw material prices and seasonal off-peak periods. On the other hand, the information and communication sector improved by 5 points as roaming demand from overseas travelers increased with the easing of COVID-19 and overseas software sales grew.

The BSI outlook for July was surveyed at 75, down 1 point from this month. Manufacturing fell by 1 point to 72, while non-manufacturing remained unchanged at 78.

The Economic Sentiment Index (ESI) for June, which incorporates the BSI and the Consumer Sentiment Index (CSI), rose by 1.5 points from the previous month to 95.7. The ESI reflects the economic sentiment of all private economic agents.

Hwang Hee-jin, head of the Statistical Survey Team at the Bank of Korea’s Economic Statistics Bureau, explained, "In manufacturing, competition intensified among semiconductor foundry suppliers, and export company performance deteriorated significantly, especially in electronics, video, and communication equipment sectors such as semiconductor design and substrate manufacturing." He added, "The semiconductor sector, which has a large share, had high expectations for price recovery due to production cuts, but the recovery has been delayed more than expected, increasing negative responses for the second half of the year and raising uncertainty."