Rising Raw Material Prices and Shipping Crisis... SME Business Outlook Declines for the First Time in 5 Months

Korea Federation of SMEs Conducts 'June Economic Outlook Survey' Targeting 3,150 SMEs
Soaring Raw Material Prices, Shipping and Logistics Disruptions... Negative Impact on Perceived Economy

[Asia Economy Reporter Kim Bo-kyung] Due to rising raw material prices and the shipping crisis, the June Small and Medium Enterprises (SMEs) business outlook index fell for the first time in five months.

The Korea Federation of SMEs conducted the "June 2021 SME Business Outlook Survey" from the 17th to the 25th, targeting 3,150 SMEs.

As a result, the June all-industry Business Outlook Index (SBHI) stood at 80.5, down 3.2 points from the previous month. An SBHI above 100 indicates that more companies expect a positive business outlook for the following month than those who do not.

This is the first decline in the SBHI for this year in five months. Since January (65.0), the index had risen for four consecutive months due to government disaster relief funds and the easing of social distancing measures.

A representative from the Federation of SMEs stated, "The recent sharp rise in raw material prices and disruptions in shipping and logistics appear to have negatively affected the perceived business conditions."

The manufacturing sector's June business outlook was 86.2, down 2.6 points from the previous month, while the non-manufacturing sector fell 3.5 points to 77.5. Construction (81.2) and service industries (76.8) also declined by 3.0 points and 3.6 points respectively compared to the previous month.

Comparing the average SBHI for the same month over the past three years, the June business outlook for manufacturing was more positive than that for non-manufacturing.

In manufacturing, expectations for raw materials, overall business conditions, production, domestic sales, exports, operating profits, and financial conditions were forecasted to improve. The inverse indicators?facility investment, inventory, and employment outlook?were also expected to improve compared to the average of the past three years. These three items are interpreted as inverse indicators that decline (shortage) during economic expansion and rise (excess) during economic contraction.

However, in non-manufacturing, all items except employment outlook and financial conditions were expected to worsen.

The main difficulties faced by SMEs in May were dominated by sluggish domestic demand (62.2%). Excessive competition among companies (40.6%), rising raw material prices (40.3%), and increasing labor costs (39.2%) followed.

The average operating rate of small and medium manufacturing firms in April 2021 was 71.1%, up 0.2 percentage points from the previous month and 4.3 percentage points from the same month last year.

By company size, the average operating rate for small enterprises rose 0.3 percentage points to 67.4%, and for medium enterprises, it increased 0.1 percentage points to 74.6%. General manufacturing rose 0.3 percentage points to 70.7%, while innovative manufacturing fell 1.1 percentage points to 75.3% compared to the previous month.

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