Q3 Corporate Sentiment Plummets... "Dropped to an All-Time Low"

[Asia Economy Reporter Kim Hyewon] The business sentiment for the third quarter has fallen to levels comparable to the global financial crisis. This decline is due to a combination of reduced global demand and concerns over a second wave of COVID-19, which have simultaneously worsened export and domestic economic outlooks. More than half of companies believe that financial and tax support should be further strengthened to overcome the COVID-19 crisis.

The Korea Chamber of Commerce and Industry (KCCI) announced on the 28th that its survey of over 2,400 manufacturing companies nationwide showed the '3rd Quarter Business Survey Index (BSI)' dropped by 2 points from the previous quarter to 55. This matches the previous lowest level recorded during the global financial crisis (Q1 2009). It is also 6 points lower than the 61 recorded during the International Monetary Fund (IMF) foreign exchange crisis. A BSI above 100 indicates that more companies view the current quarter's economy positively compared to the previous quarter, while a BSI below 100 indicates the opposite.

The KCCI explained, "Although major countries have begun to resume economic activities, the export path remains blocked due to signs of a resurgence of COVID-19." It added, "In South Korea, where the situation had been stabilizing, the number of infections is rising again, increasing corporate anxiety about a second wave." Furthermore, "Companies relying on bank loans and corporate bond issuance are facing severe financial pressure as prolonged difficulties hinder smooth funding."

In fact, the perceived BSI for both export and domestic companies declined. The export sector's BSI for the third quarter fell by 1 point to 62, while the domestic sector dropped by 3 points to 53. The expected fluctuation in sales for the first half of this year compared to the first half of last year averaged -17.5%.

By industry, all sectors recorded BSI below the baseline. The 'Shipbuilding & Parts (41)' and 'Automobile & Parts (45)' sectors, struggling in export markets such as the US and Europe, as well as 'Steel (45)', expected to face low-priced exports from China, and 'Machinery (47)', which is highly sensitive to economic conditions, all fell below 50. The 'Medical Precision (88)' and 'Pharmaceutical (79)' sectors showed relatively higher figures due to expectations related to K-quarantine efforts.

Regionally, all areas nationwide fell below the baseline, with particularly low outlooks in Busan, Ulsan, and Gyeongnam, Daegu and Gyeongbuk, and Incheon?regions dense with shipbuilding, automobile, and steel companies. Jeju, which was the worst-performing region last quarter (43) due to a sharp decline in tourists, recorded the most favorable index nationwide, buoyed by expectations of tourist inflow during the summer vacation season.

Companies identified 'financial and tax support (52.4%)' as the top policy priority to overcome the COVID-19 crisis. This was followed by 'domestic demand and consumption revitalization (46.8%)', 'employment maintenance and stability support (43.5%)', 'investment promotion (25.1%)', and 'export and overseas marketing support (14.4%)'.

More than half of manufacturing companies reported that they are not adequately preparing for the post-COVID era. Regarding the 'degree of preparation for post-COVID response measures,' the most common response was 'no capacity to respond due to focusing on minimizing damage (53.9%)', followed by 'currently preparing response measures (37.4%)' and 'already prepared and implementing measures (8.7%)'.

The main contents of the 'measures being prepared' or 'already established measures' included 'strengthening R&D activities and focusing on developing core technologies and capabilities (66.2%)', 'considering diversification of parts and materials procurement and export regions in response to changes in the Global Value Chain (GVC) (56.1%)', 'changes in production and work environments such as digital processes, non-face-to-face/online meetings, and telecommuting systems (48.0%)', and 'considering industry transformation and business restructuring toward new and convergent industries (26.6%)'. Among companies with overseas operations, only 7.8% are considering reshoring.

Kim Muntae, head of the Economic Policy Team at KCCI, emphasized, "Due to the prolonged COVID-19 pandemic, companies are facing a triple burden of financial pressure, employment retention, and lack of future revenue sources." He added, "It is a time when policy actors must unite to ensure that policies aimed at minimizing damage and stimulating the economy are implemented promptly and that legislative measures supporting these policies are swiftly passed by the National Assembly."

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