October Index 96.2... Domestic Demand Down, Exports Up from Previous Month
"Interest Rate Stabilization and Avoidance of Regulatory Legislation"
Due to the aftermath of domestic demand stagnation and prolonged high interest rates, companies are viewing the domestic economy pessimistically for next month. Companies have presented gloomy outlooks for 31 consecutive months (2 years and 7 months).
The Korea Economic Association announced on the 26th that the Business Survey Index (BSI) for 600 major companies recorded a forecast of 96.2 for next month. If the BSI is above the baseline of 100, it means positive responses about economic prospects outnumber negative ones; if below 100, the opposite is true.
The BSI forecast has remained below the baseline of 100 for 31 consecutive months since April 2022. The manufacturing and non-manufacturing BSI forecasts were 96.4 and 96.0 respectively, showing simultaneous weakness for three months. The manufacturing BSI has been below the baseline for seven consecutive months since last April. The non-manufacturing sector also fell below the baseline for three consecutive months.
The outlook for 10 detailed manufacturing sectors varied depending on export performance.
Four sectors?general and precision machinery and equipment (115.0), non-metallic materials and products (107.1), electronics and communication equipment (106.3), and automobiles and other transportation equipment (105.4)?are expected to show favorable trends. Electronics and communication equipment, which includes semiconductors, and general and precision machinery and equipment, which reflects semiconductor parts, are expected to achieve strong performance. Automobiles and other transportation equipment also surpassed the baseline of 100 for the first time in seven months, raising expectations for a rebound in automobile export performance.
The remaining six sectors are expected to experience worsening business conditions. The outlook was bleak in the following order: pharmaceuticals (75.0), petroleum refining and chemicals (81.3), food and beverages and tobacco (88.2), wood, furniture, and paper (88.9), metals and metal processing products (90.0), and textiles, apparel, leather, and footwear (92.3).
Among the seven non-manufacturing sectors, leisure, accommodation, and dining (114.3), professional scientific, technical, and business support services (108.3), and electricity, gas, and water supply (105.6) are expected to show favorable trends. Four sectors, including information and communication (87.5), fell below the baseline.
Looking at the BSI by survey category, all sectors are expected to experience sluggish business conditions. This pessimistic outlook across all sectors has continued for four consecutive months since July. The indices recorded were exports 98.1, profitability 95.9, employment 95.6, domestic demand 95.4, financial conditions 94.0, investment 90.2, and inventory 103.0.
Investment is at its lowest point in 18 months (1 year and 6 months) since April last year (88.6). An inventory index above the baseline of 100 indicates excessive inventory, which is a negative outlook. However, exports showed signs of recovery, rising 3.6 points compared to the previous month.
The Korea Economic Association explained that with corporate and household loan delinquency rates similar to those during the COVID-19 period, prolonged geopolitical conflicts, the U.S. presidential election, and other external uncertainties are causing continued stagnation in domestic demand and investment.
Lee Sang-ho, head of the Economic and Industrial Division at the Korea Economic Association, said, "Due to prolonged domestic demand stagnation such as consumption contraction, the economic recovery in the fourth quarter is uncertain. To stimulate domestic demand and expand investment, it is necessary to stabilize interest rates and avoid regulatory legislation such as expanding directors' fiduciary duties that dampen corporate vitality."
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