Domestic Demand Slump... Corporate Business Sentiment Hits Lowest in 3 Years and 5 Months

Bank of Korea February Business Survey Index (BSI) Released
Domestic Demand Slump Continues to Worsen Corporate Sentiment

A rental notice is posted on Yonsei-ro, Sinchon, Seodaemun-gu, Seoul. (Photo by Asia Economy)

It has been revealed that the business sentiment among companies has fallen to the level seen in 2020 during the COVID-19 pandemic due to sluggish domestic demand.

According to the "February Business Survey Index (BSI) and Economic Sentiment Index (ESI) survey results" released by the Bank of Korea on the 20th, the overall industry BSI for February dropped by 1 point from the previous month to 68. This is the lowest level in 3 years and 5 months since recording 64 in September 2020.

The BSI quantifies business owners' judgments and outlooks on the current business conditions. A value above 100 indicates a more positive economic outlook than the previous month, while a value below 100 indicates a negative outlook.

By sector, the manufacturing industry BSI for February was 70, down 1 point from the previous month. This decline was due to decreases in electronic, video, and communication equipment (including semiconductors) (77), medical and precision instruments (75), and petroleum refining and coke (89).

Hwang Hee-jin, head of the Bank of Korea's statistics survey team, explained, "Despite recent improvements in semiconductor exports, the BSI sharply declined due to sluggish domestic demand."

By company size, both large enterprises (-2 points) and small and medium enterprises (-1 point) declined, while by company type, export companies (+2 points) rose but domestic companies (-3 points) fell.

The non-manufacturing industry BSI for February remained unchanged at 67 from the previous month. Business facilities, business support, and rental services (76), and transportation and warehousing (87) increased, but construction (51) declined.

The business outlook BSI for March rose across both manufacturing and non-manufacturing sectors. The manufacturing business outlook BSI increased by 4 points from the previous month to 75. The non-manufacturing business outlook BSI rose by 2 points from the previous month to 70.

The February ESI, which incorporates the Consumer Sentiment Index (CSI) into the BSI, recorded 93.3, up 1.8 points from the previous month. The seasonally adjusted ESI cyclical component was 93.4, up 0.1 points from the previous month.

Both manufacturing and non-manufacturing sectors cited ▲sluggish domestic demand ▲uncertain economic conditions ▲labor shortages and rising labor costs as their main management difficulties. In manufacturing, sluggish domestic demand (21.8%), uncertain economic conditions (20.9%), and labor shortages and rising labor costs (11.8%) accounted for a large share, while in non-manufacturing, sluggish domestic demand (19%), uncertain economic conditions (17.6%), and labor shortages and rising labor costs (16.2%) were significant factors.

This month's survey was conducted from the 5th to the 14th targeting 3,524 corporate entities. Among them, 3,305 companies (1,815 manufacturing and 1,490 non-manufacturing) responded to the survey.