Corporate Sentiment Falls Again Due to COVID-19 Impact... Non-Manufacturing Sector Experiences Worst Ever Conditions

Bank of Korea 'March 2020 Business Survey Index (BSI)'
Manufacturing Sentiment Falls to Financial Crisis Levels

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] Corporate sentiment in March plummeted to its lowest level since February 2009, following the aftermath of the financial crisis. The decline in corporate sentiment over the month of March was the largest on record. In particular, the sentiment in the non-manufacturing sector, which was severely impacted by the novel coronavirus disease (COVID-19), fell to an all-time low.

According to the 'March 2020 Business Survey Index (BSI)' released by the Bank of Korea on the 31st, the overall industry BSI for this month was 54, down 11 points from the previous month. This is the lowest since February 2009 (52), and the decline is the largest since the statistics began being compiled in 2003. Last month, the overall industry BSI fell by 10 points, but this time it dropped by 11 points, making the decline even greater.

The overall industry BSI in March is similar to the level immediately following the financial crisis. In December 2008, the overall industry BSI recorded 51, followed by 52 in both January and February 2009. The magnitude of the decline was greater than during the Middle East Respiratory Syndrome (MERS) outbreak in June 2015, the global economic downturn caused by the European debt crisis in July 2012, and the 2008 financial crisis.

The BSI is an indicator that reflects the business sentiment perceived by companies; a value below 100 means that more companies view the economy pessimistically than optimistically.

The spread of COVID-19 negatively affected the sentiment in both manufacturing and non-manufacturing sectors. The manufacturing BSI recorded 56, down 9 points from the previous month (65). This is the lowest manufacturing BSI since March 2009 (56). However, the decline was slightly smaller than last month’s 11-point drop.

By industry, sentiment mainly declined in other machinery and equipment (-16 points), automobiles (-15 points), and primary metals (-11 points). A Bank of Korea official stated, "There was a decrease in orders for semiconductor equipment and transportation equipment, disruptions in parts supply for finished car manufacturers, and sluggish sales of automobile parts." The sluggishness in upstream industries (construction) was also a factor.

By company size, large enterprises (-7 points), small and medium enterprises (-12 points), export companies (-9 points), and domestic companies (-10 points) all experienced declines compared to the previous month.

The non-manufacturing business performance BSI recorded 53, marking an all-time low. This is even lower than December 2008 (56). The decline of 11 points matches that during the MERS outbreak.

The non-manufacturing business BSI showed a downward trend centered on wholesale and retail trade (-14 points), information and communications (-21 points), and professional, scientific, and technical services (-20 points). A Bank of Korea official explained, "Wholesale and retail trade were hit due to sluggish domestic consumption, and the information and communications BSI fell as orders for system software decreased." For professional, scientific, and technical services, the decline was influenced by reduced orders for construction design and supervision due to the construction sector’s downturn, as well as decreased advertising agency orders.

Since infectious diseases typically deal a direct blow to domestic demand, the non-manufacturing business BSI plummeted to an all-time low. Last month’s survey period was from the 11th to the 18th, before COVID-19 spread widely in Korea, but in March, the actual impact appears to have been properly reflected.

Meanwhile, the Economic Sentiment Index (ESI), which combines the BSI with the Consumer Sentiment Index (CSI), recorded 63.7, down 23.5 points from the previous month. This is the lowest since January 2009 (62.7), right after the financial crisis. The monthly decline was the largest on record. The seasonally adjusted and irregular component-removed cyclical component of the ESI was 77.4, down 4.2 points. The ESI cyclical component is also the lowest since March 2009.

The outlook for April was also bleak. The overall industry business outlook BSI for April was 53, down 16 points from the previous month. This is the lowest since February 2009 (53). The manufacturing business outlook BSI fell 15 points to 54, and the non-manufacturing business outlook BSI dropped 16 points to 52.

This content was produced with the assistance of AI translation services.