Bank of Korea 'July Business Survey Results and Economic Sentiment Index'
All-industry CBSI Turns Down After 5 Months
Top Business Management Difficulty: 'Weak Domestic Demand'
Exports centered on semiconductors showed strong performance, but due to sluggish domestic demand, the business conditions in manufacturing sectors such as automobiles and home appliances deteriorated, causing the corporate sentiment index to turn down for the first time in five months.
According to the "July Business Survey Results and Economic Sentiment Index (ESI)" released by the Bank of Korea on the 25th, the Composite Business Survey Index (CBSI) for all industries this month was 95.1, down 0.6 points from the previous month. The overall CBSI had been steadily rising since March after falling 1.8 points in February this year, but it turned down for the first time in five months. It has remained below 100 for 22 consecutive months since September 2022 (101.2).
The CBSI is a corporate sentiment indicator calculated using the main indices of the existing Business Survey Index (BSI) (five manufacturing and four non-manufacturing sectors). If the index is above the long-term average (January 2003 to December 2023) of 100, it indicates optimism compared to the long-term average; if below 100, it indicates pessimism.
Manufacturing sentiment improved in some sectors driving exports such as semiconductors, but worsened in other sectors. The manufacturing CBSI in July was 95.7, down 1.7 points from the previous month. Sentiment in the electronics, video, and telecommunications equipment sector improved due to continued strong semiconductor exports. However, sentiment in the chemicals sector deteriorated due to declining profitability caused by rising international oil prices and intensified competition with Chinese companies. The rubber and plastics sector also worsened due to decreased demand from upstream industries such as automobiles and construction, along with rising raw material prices. The primary metals sector's sentiment declined as steel demand from upstream industries like home appliance steel sheets weakened.
The sentiment gap between export and domestic companies widened. The export companies’ CBSI rose 0.4 points to 99.4 from the previous month. In contrast, the domestic companies’ CBSI fell 2.7 points to 93.8. While export companies’ sentiment improved, domestic companies’ sentiment deteriorated.
By company size, sentiment worsened for both large and small and medium-sized enterprises (SMEs). The large enterprise CBSI dropped 1.6 points to 96.8, and the SME CBSI fell 1.9 points to 92.8 from the previous month.
On the other hand, non-manufacturing sentiment improved due to increased peak season air passenger demand and summer cooling power demand. The non-manufacturing CBSI in July rose 0.3 points to 94.6 from the previous month. The transportation and warehousing sector’s sentiment improved due to increased peak season air passenger demand and better profitability for foreign cargo shipping companies amid rising ocean freight rates. The professional, scientific, and technical services sector saw improved sentiment as sales increased, centered on civil engineering design and advertising agencies. The electricity, gas, and steam sector also improved with increased summer cooling power demand.
August Outlook: Manufacturing Declines, Non-Manufacturing Rises
The business outlook for next month generally improved, but there was a clear divergence between manufacturing and non-manufacturing sectors. The overall CBSI outlook for August was 93.4, up 0.3 points from the previous month. The non-manufacturing CBSI outlook rose 1.1 points to 92.8. However, the manufacturing CBSI outlook fell 0.9 points to 94.2. By size, large enterprises remained flat from the previous month, while SMEs declined 1.5 points. By type, export companies remained flat, but domestic companies fell 1.1 points from the previous month.
The biggest current management difficulties for both manufacturing and non-manufacturing sectors were sluggish domestic demand. For manufacturing, the highest proportion of management difficulties was sluggish domestic demand (22.5%), followed by uncertain economic conditions (17.8%) and labor shortages and rising labor costs (10.3%). For non-manufacturing, the order was sluggish domestic demand (20.1%), uncertain economic conditions (16%), and labor shortages and rising labor costs (13.4%).
The Economic Sentiment Index (ESI) for July, which combines the BSI and the Consumer Sentiment Index (CSI), was 95.9, up 1.2 points from the previous month. The cyclical component rose 0.3 points to 94.
This survey was conducted from the 10th to the 17th of this month targeting 3,524 corporate entities nationwide. The number of respondents was 3,347, with 1,878 in manufacturing and 1,469 in non-manufacturing.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
