Corporate Sentiment Rebounds, but Manufacturing Sector Remains in Deep Freeze

Bank of Korea 'May 2020 Corporate Business Survey Index (BSI)'

[Asia Economy Reporter Kim Eunbyeol] Corporate sentiment rebounded for the first time in five months. This was thanks to the easing of the service sector downturn as the spread of COVID-19 slowed domestically. However, the manufacturing sector remained in a deep freeze. Exports have been hit due to disruptions in the global supply chain caused by the COVID-19 pandemic.

According to the "May 2020 Business Survey Index (BSI)" released by the Bank of Korea on the 27th, the BSI for all industries this month rose 2 points from the previous month to 53. Last month, the BSI for all industries had fallen to the same level as December 2008, when the global financial crisis was at its peak, but this month it rebounded after five months.

The BSI is an indicator that surveys business owners' judgments and outlooks on their current business conditions. If the number of respondents who answer negatively exceeds those who answer positively, the index falls below 100. A lower figure indicates worse corporate sentiment.

However, the sentiment felt by the manufacturing sector worsened further. The manufacturing BSI dropped 3 points from the previous month to 49, marking the lowest level since February 2009 (43).

By company size in manufacturing, large enterprises (57) and small and medium enterprises (41) fell by 2 points and 4 points respectively. By company type, export companies (53) dropped 2 points, and domestic companies (47) declined by 4 points.

Kang Chang-gu, head of the Corporate Statistics Team at the Bank of Korea’s Economic Statistics Bureau, said, "The manufacturing BSI has continuously declined due to sluggish exports, but the easing of the service sector downturn led to an increase in the overall industry BSI. In manufacturing, export-oriented large companies are experiencing export slumps due to global supply chain disruptions, and small and medium domestic companies are also facing difficulties in operations such as product delivery delays." He added, "The recovery of the BSI depends entirely on whether COVID-19 is brought under control, but at present, it is difficult to predict when that will happen."

In May, the manufacturing sales BSI fell 10 points from the previous month to 48, and the profitability BSI (74) dropped 5 points. The financial condition BSI (64) also worsened by 2 points compared to the previous month.

By industry, the automotive sector BSI fell 11 points due to sluggish auto parts sales, and the chemical substances and products BSI dropped 10 points due to weak exports of cosmetics and other chemical products. However, the medical substances and pharmaceuticals BSI rose 23 points as sales of nutritional supplements increased.

Manufacturing business owners cited uncertain economic conditions (25.7%) and domestic demand slump (20.4%) as their biggest management difficulties. However, the proportion citing export slumps as a cause rose by 2.9 percentage points from last month to 15.5%. As COVID-19 showed slight signs of easing, the share citing uncertain economic conditions fell by 0.7 percentage points.

The non-manufacturing BSI (56) in the service sector rose 6 points from the previous month. The transportation and warehousing BSI increased by 14 points due to increased domestic distribution volume and falling fuel costs, and the information and communication sector rose 9 points as system software orders increased. Retail and wholesale trade rose 7 points, supported by policy effects such as the government’s emergency disaster relief payments.

Although the service sector showed signs of improvement, the June BSI outlook for all industries rose only 3 points to 53, as there were no signs of export recovery.

Meanwhile, the Economic Sentiment Index (ESI), which combines the Business Sentiment Index and the Consumer Sentiment Index, rose 2.1 points from the previous month to 57.8. The seasonally adjusted ESI cyclical component fell 6.8 points to 57.5.

This survey was conducted from May 12 to 19, targeting 3,696 corporate entities nationwide.

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