It's May... Manufacturing Industry Still in Midwinter (Comprehensive)

Despite a rebound in overall business sentiment,
manufacturing industry declines again due to export slump

[Image source=AP Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] Although corporate sentiment rebounded after five months, the manufacturing sector, the backbone of the Korean economy, remains in deep winter. The global value chain (GVC) disruption caused by the COVID-19 pandemic has severely impacted exports.

According to the 'May 2020 Business Survey Index (BSI)' released by the Bank of Korea on the 27th, the overall industry business condition BSI rose by 2 points from the previous month to 53. Last month, the overall industry BSI 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 index that surveys business owners' judgments and outlooks on the current business situation; if more respondents answer negatively than positively, the index falls below 100. A lower figure indicates worse corporate sentiment.

However, the manufacturing sector's sentiment worsened further. The manufacturing business condition BSI dropped 3 points from the previous month to 49, marking the lowest level since February 2009 (43). The manufacturing BSI was 76 in January this year, then fell to 65 in February, 56 in March, 52 in April, and continued to decline in May.

By company size, 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, stated, "The manufacturing BSI has continuously declined due to export sluggishness, but the overall industry BSI rose as the service sector's downturn eased. In manufacturing, export-oriented large companies are experiencing export difficulties due to GVC disruptions, and small and domestic companies are also facing operational challenges such as product delivery delays." He added, "The recovery of the BSI depends entirely on the containment of COVID-19, but it is difficult to predict the timing at this point."

In May, the manufacturing sales BSI fell sharply by 10 points to 48 compared to the previous month, and the profitability BSI (74) dropped by 5 points. The financial condition BSI (64) also worsened by 2 points from the previous month. By industry, the automobile business condition BSI declined by 11 points, and the chemical substances and products BSI fell by 10 points due to sluggish exports of cosmetics and other chemical products. However, the medical substances and pharmaceuticals BSI rose by 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. The proportion citing export sluggishness increased by 2.9 percentage points to 15.5% compared to last month. As COVID-19 showed slight signs of easing, the share of uncertain economic conditions decreased by 0.7 percentage points.

The non-manufacturing sector has hit bottom and escaped the worst. The non-manufacturing business condition BSI (56), which includes the service sector, rose by 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 by 9 points as system software orders increased. Retail and wholesale trade rose by 7 points, supported by government emergency disaster relief payments and other policy effects.

Although the service sector shows signs of improvement, exports have yet to recover, so the overall industry business outlook BSI for June rose only 3 points to 53. Meanwhile, the Economic Sentiment Index (ESI), calculated by combining the Business Sentiment Index and the Consumer Sentiment Index, increased by 2.1 points from the previous month to 57.8. The seasonally adjusted ESI cyclical component fell by 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.