Rising Raw Material Prices Slow Corporate Sentiment... "Uncertainty Heightened by Delta Variant"

[Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] The trend of improving business sentiment among companies has stalled due to factors such as rising raw material prices. However, the manufacturing sector's business sentiment is at its highest level in over 10 years since April 2011.

According to the "June 2021 Business Survey Index (BSI) and Economic Sentiment Index (ESI)" released by the Bank of Korea on the 25th, the overall industry BSI for this month recorded 88, the same level as last month. The overall industry BSI rose from 76 in February to 83 in March and 88 in April, but remained flat in May and June.

The BSI is a statistic that surveys business owners' judgments and outlooks on current business conditions; if negative responses outnumber positive ones, the index falls below 100.

Among these, the manufacturing sector BSI rose 2 points from the previous month to 98. Due to increased demand for cables, semiconductors, and electronic components, electrical equipment rose by 6 points, and electronic video communication equipment increased by 3 points. The manufacturing sector BSI is at its highest level in 10 years and 2 months since April 2011 (99).

However, due to the narrowing spread (product price - raw material price) in chemical products, business sentiment worsened in the chemical substances and products sector (-5 points).

By company size, among manufacturing, the large enterprises' business outlook BSI fell 3 points to 107, while small and medium enterprises (SMEs) (88) rose 8 points. Domestic companies (90) increased by 1 point, and export companies (111) rose by 2 points.

The non-manufacturing sector BSI remained at 81, the same level as the previous month. In non-manufacturing, the wholesale and retail sector (-7 points) dropped significantly due to rising costs of goods sold and supply disruptions, and the real estate sector (-6 points) struggled due to decreased income from leasing and sales. On the other hand, the professional, scientific, and technical services sector (+6 points) saw improved business sentiment thanks to increased orders for advertising and event agency services.

Kim Dae-jin, head of the Corporate Statistics Team at the Bank of Korea's Economic Statistics Bureau, explained, "There are some differences in business conditions by industry. In manufacturing, the BSI rose as semiconductor supply issues were somewhat resolved, but in non-manufacturing, there was no improvement due to rising raw material prices and logistics problems."

He added, "Exports are currently improving, so the possibility of better business sentiment among companies in the future remains high," but also noted, "Uncertainty remains high due to rising raw material prices and the COVID-19 Delta variant."

The BSI outlook for July business conditions (90) rose 2 points from June (88). Manufacturing (99) and non-manufacturing (82) increased by 2 points and 1 point, respectively.

The Economic Sentiment Index (ESI) for June, which reflects both the BSI and the Consumer Sentiment Index (CSI), recorded 109.3, 3.9 points higher than in May. The seasonally adjusted ESI cyclical component (109.3) also rose 3.3 points within a month.

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