'Agonizing Struggle' for Manufacturing SMEs Shows Green Light After 4 Months... "Too Early for Optimism"

Rebound After 4 Months of Production... Exports on the Rise
Financial Conditions Worsen... Loans Increase by '8.4 Trillion' in One Month
Factory Operating Rate and Employment Situation Also Unfavorable

[Image source=AP Yonhap News]

[Asia Economy Reporter Junhyung Lee] Production in small and medium-sized manufacturing enterprises (SMEs) has turned to an upward trend after four months, and exports continue to rise. However, employment has sharply declined compared to last year, and financial conditions remain poor. Experts unanimously agree that "it is still too early to be optimistic." It is an assessment that companies struggling due to COVID-19 are fighting a hard battle.

According to the Small and Medium Business Research Institute on the 28th, production in small and medium-sized manufacturing enterprises increased by 2.1% year-on-year in January. After showing a decline for three months from October last year, it rebounded. SME production decreased by 7.3%, 1.6%, and 0.1% respectively from October to December last year. Inventories increased by 0.2% year-on-year, showing a smaller increase compared to the 0.8% growth rate in December last year.

Exports have shown an increasing trend for the past four months. Last month, exports from small and medium-sized manufacturers increased by 7.3% year-on-year. Although this is 10.9 percentage points lower than the 18.2% growth rate in January, it is considered a solid performance given the impact of COVID-19.

The outlook Small Business Health Index (SBHI) is also showing positive signs. The SME manufacturing outlook SBHI for this month was 86.3 points, up 9.7 points from the previous month. After falling 3.1 points from 78.4 points in December last year to 75.3 points in January, it has risen for two consecutive months. An outlook SBHI above 100 indicates that many companies expect economic improvement.

However, the business conditions of small and medium-sized manufacturing enterprises are not entirely "rosy." First, financial conditions are worsening. Last month, the SME manufacturing financial condition SBHI was 73.6 points, down 0.9 points from the previous month. The amount of loans taken by SMEs from deposit banks last month was approximately 819.6 trillion won, increasing by about 8.4 trillion won in just one month. This contrasts with large corporations, whose loans increased by only 700 billion won during the same period.

Factory operating rates have been declining since November last year. In January, the factory operating rate for SMEs was 69.6%, down 0.3 percentage points from the previous month. This is 3.7 percentage points lower than the 2019 annual operating rate of 73.3%, before COVID-19.

The employment situation is also worse compared to large corporations. Last month, the number of employees in small and medium-sized manufacturing enterprises was 3.565 million, a decrease of 54,000 compared to the same month last year. In contrast, employment in large manufacturing enterprises was 853,000, an increase of 27,000 year-on-year.

Given these circumstances, experts say it is premature to adopt an optimistic view. Noh Minseon, head of the Future Strategy Research Group at the Small and Medium Business Research Institute, said, "If we were to describe the current business conditions of SMEs in one word, it would be 'a hard-fought battle,'" adding, "SMEs have made some positive achievements through continuous efforts for innovation and technology investment."

Noh also noted, "However, behind this are rapidly increasing loan balances and worsening employment conditions," and warned, "If the economic crisis continues, these trends could become a significant burden for small and medium-sized manufacturers."

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