Business Outlook for First Quarter of New Year Remains Weak Amid High Exchange Rate and Costs

Korean Chamber of Commerce and Industry Releases 2026 Q1 BSI Survey
Survey of 2,208 Manufacturing Companies Nationwide
Export Outlook Rebounds, but Domestic Market Sentiment Remains Weak
Semiconductors and Cosmetics Strong, Yet High Exchange Rate Casts a Shadow
"Performance Worsened Due to High Exchange Rate" 38.1%... Only 8% See Improvement

Thanks to strong performance in sectors such as semiconductors and cosmetics, export companies' business outlook has rebounded noticeably. However, due to the persistently high exchange rate and resulting high costs, Korean companies are still viewing the economic outlook at the beginning of the new year with pessimism.

The Korean Chamber of Commerce and Industry announced on the 28th that, according to a survey of 2,208 manufacturing companies nationwide regarding the 'Business Survey Index (BSI) for the first quarter of 2026,' the index was tallied at 77, up 3 points from the previous quarter's forecast of 74. The index has remained below the baseline of 100 for 18 consecutive quarters since the third quarter of 2021. An index below 100 means companies perceive the future economy as 'negative,' while a reading above 100 is considered a 'positive' outlook.

The Chamber explained that although the outlook index for export companies, which had plummeted due to tariff shocks, rebounded by 16 points to 90, the outlook index for domestic market-oriented companies remained at 74, holding back the overall improvement in business sentiment.

In particular, by company size, the outlook index for small and medium-sized enterprises was 75, which was relatively low compared to large corporations (88) and mid-sized companies (88). For large corporations, the high proportion of exports meant that the easing of tariff uncertainties had a positive effect. In contrast, for small and medium-sized enterprises that rely heavily on the domestic market, the burden of raw material procurement costs due to the high exchange rate increased, resulting in stagnant business sentiment.

Among the 14 industries surveyed, only two-semiconductors and cosmetics-recorded a reading above the baseline of 100, showing an upward trend. Semiconductors reached 120, up 22 points from the previous quarter, driven by increased demand for high-bandwidth memory (HBM) due to the spread of artificial intelligence (AI) and expanded data center investments, as well as rising prices due to a shortage of general-purpose memory supply. Cosmetics showed the largest increase (+52 points), as strong exports continued thanks to the strengthened global status of K-beauty in markets such as North America, Japan, and China.

Shipbuilding, led by major shipbuilders, is expected to benefit from securing three years' worth of order backlogs and increased orders for high-value-added vessels, rising 19 points from the previous quarter to reach 96, close to the baseline. The automobile sector also saw its outlook index rise by 17 points due to eased tariff uncertainties from the United States and increased supply capacity from new domestic electric vehicle plants. However, as the global market slowdown is expected to continue, the index remained at 77.

Industries facing increased cost burdens due to the sustained high exchange rate had poor outlooks for the new year. Food and beverages, which have a high proportion of imported raw materials, recorded 84, down 14 points from the previous quarter, due to increased cost burdens from the rising exchange rate. The electrical equipment sector also fell 21 points to 72, as surging copper prices-reaching all-time highs-are expected to worsen profitability for electrical equipment manufacturers. Non-metallic minerals recorded the lowest outlook index, as the construction industry downturn was compounded by the high exchange rate. Steel, with a 50% tariff rate maintained for exports to the United States, continued to stay below 70 for five consecutive quarters due to oversupply from China and the additional burden of the high exchange rate.

With the won-dollar exchange rate remaining in the 1,400 won range for three consecutive months, more than four times as many companies responded that the high exchange rate negatively affects their performance compared to those who said it has a positive impact.

Specifically, 38.1% of companies said their performance had deteriorated due to the sustained high exchange rate. Among them, 23.8% were domestic market-oriented companies with high raw material imports, and 14.3% were companies that, despite a high proportion of exports, experienced a greater increase in import costs. In contrast, only 8.3% of companies responded that their export performance had improved due to the high exchange rate.

On the other hand, 48.2% of companies said that the impact of the high exchange rate was not significant. Of these, 37.0% said that the won-dollar exchange rate had no impact due to the structure of their business, while the remaining 11.2% responded that, although there was an impact, the positive and negative effects offset each other, resulting in minimal changes in performance.

On the 23rd, the exchange rate of KRW/USD was displayed on the status board in the dealing room of Woori Bank headquarters in Jung-gu, Seoul. Photo by Yonhap News Agency

This year, many companies responded that their business performance fell short of targets. In terms of sales performance, 65.1% of all companies said they fell short of their targets set at the beginning of the year. Of these, 32.5% responded that they fell short by more than 10%, while 32.6% said they fell short by within 10%, showing similar proportions. Only 26.4% of companies said they achieved their annual sales targets, and just 8.5% of all companies responded that they exceeded their sales targets.

Due to numerous cost increases this year, the achievement rate for operating profit targets was even lower than that for sales. A total of 68.0% of companies said their operating profit performance fell short of targets set at the beginning of the year, 2.9% higher than the proportion of companies that missed their sales targets. Only 25.4% of companies said they achieved their operating profit targets, and just 6.6% said they exceeded them.

The main reason for the low achievement rate of operating profit was ultimately cost issues. When asked about the burdens affecting operating profit achievement this year, 65.7% of companies cited 'raw material price fluctuations,' and 53.7% pointed to 'rising labor costs.' This was followed by 'exchange rate factors' (27.5%) and 'tariff and trade costs' (14.0%).

Kim Hyunsoo, Head of Economic Policy at the Korean Chamber of Commerce and Industry, emphasized, "While expectations for economic recovery are rising due to eased trade uncertainties and strong exports of key items, the continued high exchange rate and delayed domestic recovery are still placing a heavy burden on companies. The government should focus on fundamental economic reforms such as introducing growth-oriented systems, deregulation, and restructuring high-cost structures, while supporting the recovery of manufacturing competitiveness through bold incentives for restructuring crisis industries and future sectors such as AI."