Manufacturing Sentiment Drops for the First Time in 7 Months (Summary)

Consistently Improved Since May
Recorded 82 with a 3-Point Drop in December
Non-Manufacturing BSI Also Fell 5 Points Due to 3rd COVID Wave
First Simultaneous Decline Since 1st COVID Wave

[Asia Economy Reporter Kim Eunbyeol] Due to the impact of the third wave of the novel coronavirus infection (COVID-19), corporate sentiment has plummeted for the first time in three months. The manufacturing sector's sentiment, which had been steadily improving since May amid a recovery in exports, declined again after seven months, and the non-manufacturing sector, which has a high proportion of face-to-face industries and is heavily affected by COVID-19 shocks, was also hit. This simultaneous decline in manufacturing and non-manufacturing sentiment since the beginning of this year is the first since the first major COVID-19 outbreak period from February to April. As uncertainty grows, companies' economic outlook for January next year has also worsened.

According to the 'December 2020 Business Survey Index (BSI)' released by the Bank of Korea on the 30th, the BSI for all industries' business conditions in December was 75, down 3 points from the previous month. This marks the first decline in three months since September, when it recorded 64, down 2 points from the previous month.

The BSI is a statistic that surveys business owners' judgments and outlooks on current management conditions; if negative responses outnumber positive ones, the index falls below 100. This survey was conducted from December 14 to 21, when daily COVID-19 confirmed cases exceeded 1,000, with responses from 2,808 corporate entities.

The manufacturing sector's business condition BSI was 82, reversing to a decline after seven months. It fell 3 points from the previous month, mainly due to decreases in automobiles (-16 points), electrical equipment (-11 points), and rubber & plastics (-9 points). In the automobile industry, the BSI dropped significantly as parts sales decreased and automakers reduced operations. The electrical equipment BSI declined due to reduced sales of electrical materials, and the rubber & plastics BSI fell as raw material prices rose. However, the manufacturing business condition BSI remained above the long-term average (79, from January 2003 to December 2019).

Both sales and profitability in manufacturing worsened, with the most significant management difficulty cited as uncertain economic conditions (24.0%). This was followed by sluggish domestic demand (14.2%) and weak exports (12.1%). The proportion of companies citing exchange rates as a management difficulty rose by 2.4 percentage points from the previous month to 10.1%.

By company size, the BSI for large corporations rose by 2 points, but the BSI for small and medium enterprises (-8 points), export companies (-4 points), and domestic companies (-1 point) all declined. Kim Daejin, head of the Corporate Statistics Team at the Bank of Korea's Economic Statistics Bureau, said, "The automobile industry's downturn and reduced car parts sales due to COVID-19 affected small and medium enterprises." Large corporations showed improvement due to a higher proportion of the electrical, electronic, and telecommunications equipment industry, which includes semiconductors.

The non-manufacturing sector BSI, which is heavily impacted by COVID-19 shocks, fell 5 points to 68. By industry, wholesale and retail trade dropped 15 points, and construction fell 4 points due to sluggish domestic demand and decreased housing construction orders. Conversely, the electricity and gas sector rose 7 points, reflecting increased sales due to higher heating demand.

Companies anticipate continued difficulties early next year as COVID-19 persists. The BSI for all industries' outlook for January next year was 70, down 6 points from the previous month. The manufacturing sector's outlook BSI was 77, down 4 points, and the non-manufacturing sector's outlook BSI was 64, down 8 points. The December Economic Sentiment Index (ESI) recorded 82.5, down 6.6 points from the previous month, while the seasonally adjusted ESI cyclical component (86.3) rose 3.3 points.

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