Corporate Sentiment on Economy Plummets to Financial Crisis Levels... May Looks Even Bleaker (Comprehensive)

Impact of COVID-19 Pandemic on Exports and Large Corporations Becomes Evident

Manufacturing Sales, Profitability, and Financial Conditions Deteriorate Simultaneously
Inventory Accumulates and Production Facilities Become Excessive

[Asia Economy Reporter Kim Eun-byeol] Ultimately, the novel coronavirus infection (COVID-19) has dragged companies' business sentiment down to levels comparable to the 2008 financial crisis. Although COVID-19 has stabilized domestically and the business sentiment of domestic demand companies did not decline compared to last month, the problem is that the impact on exports and large corporations, which account for a significant portion of our economy, is becoming visible. The business outlook for May is also bleak.

According to the 'April Business Survey Index (BSI) and Economic Sentiment Index (ESI)' released by the Bank of Korea on the 29th, the BSI for overall industrial business performance was recorded at 51, down 3 points from the previous month. This is the lowest level since December 2008 (51).

The manufacturing industry BSI was 52, down 4 points from the previous month. This is the lowest since February 2009 (43). Indices for large corporations (59), small and medium enterprises (45), export companies (55), and domestic demand companies (51) all declined simultaneously following the previous month. Although the decline narrowed, the indices for large corporations (-6 points) and export companies (-8 points) fell more sharply than those for small and medium enterprises (-1 point) and domestic demand companies (no change), which is notable.

By sector, the automobile and semiconductor industries, which had relatively withstood the initial spread of COVID-19, are particularly negative. Kang Chang-gu, head of the Corporate Statistics Team at the Bank of Korea's Economic Statistics Bureau, explained, "The April manufacturing BSI declined mainly in electrical equipment (-12 points), automobiles (-10 points), and electronic, video, and communication equipment (-3 points). This was influenced by sluggish exports of front industries (automobiles), automobile parts, semiconductors, and electronic components related to communication equipment."

Experts expect the shock to the semiconductor and automobile sectors to intensify starting in the second quarter. Market research firm IC Insights forecasts that global semiconductor shipments will decline for the first time ever for two consecutive years. The automobile industry is expected to face a similar situation. Hyundai Motor Company anticipates that demand will weaken significantly from the second quarter in the U.S., Europe, and India due to COVID-19.

Looking at detailed items of the manufacturing BSI also reflects the companies' situations. While sales, profitability, and financial conditions BSIs all declined simultaneously, product inventory and production facility levels showed an upward trend. Team leader Kang said, "Sales and profitability worsened, inventories accumulated, and production facilities are in an excess state. The BSI moving simultaneously in the same direction is characteristic of an economic downturn."

The non-manufacturing BSI fell 3 points from 53 in the previous month to 50, setting a new all-time low again. This was due to sluggish sales of industrial electricity and gas and a decrease in construction orders. However, domestically, as COVID-19 calms down, golf courses and hotel visitors have increased. The retail and wholesale BSI also remained at the same level as last month.

The business outlook for May, as expected by companies, was even bleaker. The overall industrial business outlook BSI dropped to 50, the lowest since January 2009 (49). If the forecast holds, next month's BSI is expected to worsen compared to the financial crisis period. The ESI, calculated by combining the corporate sentiment index with the consumer sentiment index (CSI), fell 8.0 points to 55.7. This is the lowest since December 2008 (55.5). The seasonally adjusted ESI cyclical component dropped 6.7 points to 64.5.

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