"Will Improve Further in Q3"... Corporate Sentiment Exceeds Benchmark for the First Time in 7 Years

KCCI Q3 BSI '103'... Export Rebound and Vaccine Rollout Boost Domestic Recovery Expectations

[Asia Economy Reporter Hwang Yoon-joo] The manufacturing business sentiment index for the third quarter surpassed the baseline (100) for the first time in seven years since the third quarter of 2014. This indicates that more companies view the third quarter economy more positively than the second quarter, reflecting expectations of export rebounds due to global economic recovery and domestic demand recovery driven by expanded COVID-19 vaccinations.

The Korea Chamber of Commerce and Industry (KCCI) announced on the 30th that its recent survey of over 2,400 manufacturing companies nationwide showed the third quarter Business Survey Index (BSI) rose 4 points from the previous quarter to 103.

KCCI analyzed, "Exports have increased by more than 40% for two consecutive months (April 41.2% → May 45.6%, year-on-year) due to economic recovery in major countries such as the U.S. and China, and the domestic vaccination rate has also risen significantly, making herd immunity achievable within the second half of the year. These factors have contributed to expectations of domestic demand recovery."

In fact, the business sentiment indices for both export (112) and domestic demand (101) sectors exceeded the baseline.

By industry, ‘Machinery (120)’, ‘Pharmaceuticals (113)’, ‘IT & Home Appliances (108)’, ‘Medical Precision Instruments (106)’, and ‘Food & Beverage (105)’ all surpassed the baseline. The machinery sector, expected to benefit from the U.S. public infrastructure expansion policy, showed particularly strong sentiment. The bio and consumer goods sectors also showed positive outlooks due to COVID-19-related demand and expectations for domestic recovery. On the other hand, sectors such as ‘Petroleum & Petrochemicals (96)’, affected by lower refining margins due to rising oil prices, as well as ‘Shipbuilding & Parts (85)’, ‘Publishing & Printing (81)’, and ‘Non-metallic Minerals (80)’ showed predominantly negative forecasts.

Regionally, 10 areas including Chungnam (116), Seoul (114), Gwangju (113), and Incheon (108) exceeded the baseline. In Chungnam, expected investment increases driven by the ‘K-Semiconductor’ policy acted as a positive factor. Regions such as Gangwon (79), Jeonbuk (89), and Sejong (90) showed more negative outlooks. Gangwon, where construction is concentrated, appeared sluggish due to recent price increases in key construction raw materials like rebar and cement.

Regarding domestic and international risks affecting second-half performance, companies cited ‘exchange rate and raw material price volatility’ (67%), which can impact profitability, followed by concerns over ‘domestic demand stagnation’ due to additional COVID-19 spread (45.3%), and ‘policy risks’ such as minimum wage increases and corporate burden legislation (38.3%).

Kim Moon-tae, head of KCCI’s Economic Policy Team, stated, "To sustain a solid economic recovery, policy authorities need to take preemptive measures against volatility in raw material prices, export freight rates, and potential U.S.-originated interest rate shocks. In the post-COVID era, government and private sector collaboration must be more active in strengthening industrial competitiveness through eco-friendly technologies, digital transformation, and talent development in new industries."

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