Slight Improvement in Corporate Sentiment After Four Months Following Interest Rate Cut

Bank of Korea October All-Industry Business Survey Index (CBSI)
Rises for the First Time in Four Months Following Base Rate Cut
Next Month's Economic Outlook Deteriorates

Following the base interest rate cut, the perceived business conditions of South Korean companies showed a slight improvement after four months. However, many assessments indicated that the economy is expected to worsen next month due to uncertainties such as the upcoming U.S. presidential election, the IT sector, and geopolitical risks.

According to the "October Business Survey Results and Economic Sentiment Index (ESI)" released by the Bank of Korea on the 24th, the Composite Business Survey Index (CBSI) for all industries this month was 92.1, up 0.9 points from the previous month.

The CBSI is a sentiment indicator calculated using key indices from the Business Survey Index (BSI). A CBSI above the long-term average (January 2003 to December 2023) of 100 indicates optimism, while below 100 indicates pessimism.

The all-industry CBSI had declined for three consecutive months in July (95.1), August (92.5), and September (91.2), but showed a slight improvement after four months. However, since the CBSI remains below 100, corporate sentiment toward the economy is still pessimistic.

Manufacturing sentiment improved, centered on automobiles, electrical equipment, and other machinery and equipment. The manufacturing CBSI for October was 92.6, an increase of 1.7 points from the previous month.

By sector, the automobile industry was influenced by increased consumer purchasing power following the U.S. base interest rate cut, which boosted finished car exports. Electrical equipment saw increased demand for cables and transformers due to expanded overseas investments in AI-related power grids, and other machinery and equipment experienced inventory reductions mainly in semiconductor manufacturing equipment and ship parts.

Non-manufacturing improved mainly in information and communication, wholesale and retail trade, and transportation and warehousing. The non-manufacturing business sentiment index for October was 91.7, up 0.3 points from the previous month.

The information and communication sector benefited from improved sales centered on game software development and educational book publishers. Wholesale and retail trade saw sales improvements mainly in home appliances, electronics, and automobile sales. Transportation and warehousing were supported by increased demand for goods storage and freight transportation.

Economic Outlook for Next Month Deteriorates... Uncertainties Including U.S. Presidential Election Remain

Many companies expected the economy to worsen next month. The business sentiment index forecast for November showed a decline of 3.5 points to 90.5 in manufacturing and a 2.3-point drop to 89.2 in non-manufacturing compared to the previous month. Manufacturing deteriorated mainly in electronic, video, communication equipment, and rubber and plastics sectors, while non-manufacturing worsened primarily in business facility management, business support and rental services, and arts, sports, and leisure-related services.

Hwang Hee-jin, head of the Statistical Survey Team at the Bank of Korea's Economic Statistics Bureau, said, "This month's business sentiment was boosted by the base interest rate cuts in Korea and the U.S. and China's economic stimulus measures," but added, "However, it takes time for these effects to be reflected, and given the decline in new orders, there are not many sectors expected to show positive (improving) sentiment next month."

He continued, "Risks such as the outcome of the U.S. presidential election, developments in the Middle East situation, and uncertainties in the IT sector are expected to persist, so there has been no significant shift toward markedly positive corporate sentiment."

The Economic Sentiment Index (ESI) for October, which incorporates the Consumer Sentiment Index (CSI) into the BSI, recorded 92.5, down 1.2 points from the previous month. The seasonally adjusted cyclical component remained unchanged at 93.5 compared to the previous month.

Meanwhile, this survey was conducted from the 8th to the 16th of this month, targeting 3,524 corporate entities nationwide. There were 3,304 respondents, with 1,850 in manufacturing and 1,454 in non-manufacturing.