August Business Outlook Contracts for First Time in 5 Months... Triple Challenges of COVID-19, Soaring Raw Materials, and Domestic Demand Slump

[Asia Economy Reporter Suyeon Woo] As domestic companies face the triple hardships of the resurgence of COVID-19, soaring raw material prices, and domestic demand stagnation, their economic outlook has turned negative for the first time in five months.

On the 29th, according to the Business Survey Index (BSI) conducted by the Korea Economic Research Institute targeting the top 600 companies by sales, the comprehensive economic BSI outlook for August recorded 95.2, down 7.1 points from the previous month. The BSI outlook, which had maintained a positive economic forecast since March this year, fell below the baseline (100) for the first time in five months, signaling a halt in the economic recovery trend. A comprehensive economic BSI outlook above the baseline of 100 indicates a positive economic outlook, while below 100 indicates a negative economic outlook.

Source=Korea Economic Research Institute

By sector in the August outlook, the figures were ▲domestic demand 93.7 ▲exports 95.4 ▲investment 100.6 ▲employment 104.6 ▲financial conditions 99.7 ▲profitability 93.4 ▲inventory 98.3. Among these, four sectors?domestic demand, exports, financial conditions, and profitability?fell below the baseline, showing a predominance of negative outlooks. Investment, employment, and inventory sectors showed favorable forecasts, but investment and employment slightly weakened compared to July’s outlook (102.3 and 105.7, respectively).

By industry, both manufacturing (94.0) and non-manufacturing (96.7) showed negative outlooks for August. The Korea Economic Research Institute interpreted that the fourth wave of COVID-19 caused by the Delta variant is dampening corporate sentiment across the domestic industry. In particular, despite the favorable trend in electricity, gas, and water sectors due to seasonal demand increases in non-manufacturing, the outlook sharply declined in face-to-face service sectors such as wholesale and retail, leisure, accommodation and dining, and air transportation, dropping below the baseline after just one month.

Additionally, the continued rise in international raw material prices and maritime freight costs in July has increased economic uncertainty. The Korea Economic Research Institute cited the decline in export price competitiveness due to rising costs as a factor worsening the export outlook in August. It added that if the resurgence of COVID-19 in major consumer markets such as the U.S. and EU leads to reduced consumption, it could severely impact Korean companies’ exports.

Choo Kwang-ho, Director of Economic Policy at the Korea Economic Research Institute, said, "The supply shock caused by rising raw material and freight costs combined with the resurgence of COVID-19 is materializing the fear of stagflation, which means economic stagnation accompanied by inflation." He added, "It is necessary to improve productivity across industries to absorb inflationary factors such as rising raw material prices," and emphasized, "Urgent policy responses are needed to stimulate domestic demand through increased vaccination rates as well as to improve the investment and employment environment for companies."

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