'Rising Oil and Logistics Costs, Semiconductor Supply Shortage'... Manufacturing Sector Sentiment Declines for Third Consecutive Month

Bank of Korea 'September 2021 Business Survey Index (BSI)'

[Asia Economy Reporter Kim Eunbyeol] The business sentiment index for September fell for the first time in two months due to the combined effects of the COVID-19 surge, rising oil prices, and semiconductor supply shortages. The manufacturing sector's sentiment has declined for three consecutive months, with the rate of decline increasing.

According to the 'September 2021 Business Survey Index (BSI)' released by the Bank of Korea on the 30th, the overall industry BSI for this month was 84, down 3 points from the previous month. The causes included the continued spread of COVID-19, rising oil and logistics costs, reduced working days due to the Chuseok holiday, and semiconductor supply shortages. The BSI for next month's business outlook also fell by 1 point from 87 in the previous month to 86. The BSI is an indicator that surveys companies' perceptions of the economy; a value above 100 means more companies responded that business conditions are good, while below 100 means more companies responded that conditions are poor.

Both manufacturing and non-manufacturing sectors showed sluggish business conditions. The manufacturing BSI was 90, down 5 points from the previous month. As the COVID-19 situation improved, the manufacturing BSI rose to 96 in April and May, and 98 in June, approaching 100, but with the resurgence of COVID-19 from July, it gradually declined to 97, 95, and then 90.

Looking at the manufacturing BSI by sector, rubber and plastics (-11 points), electronics, video, and communication equipment (-10 points), and automobiles (-8 points) showed particularly weak performance. The rise in raw material prices and logistics costs, along with reduced operating rates at overseas factories due to the spread of COVID-19, were the causes. The shortage of semiconductor and automotive semiconductor supplies also negatively impacted manufacturing business conditions.

By company size and type, large enterprises (-5 points), small and medium enterprises (-4 points), export companies (-8 points), and domestic companies (-2 points) all showed declines. The manufacturing business outlook BSI for next month also dropped 3 points from the previous month to 93.

Among management difficulties faced by manufacturing companies, the highest proportion was due to rising raw material prices, followed by uncertain economic conditions and sluggish domestic demand. The proportion citing export sluggishness increased (+1.2 percentage points) compared to the previous month, while the proportion citing rising raw material prices decreased (-1.7 percentage points).

In the non-manufacturing sector, transportation and warehousing rose 7 points due to increased freight rates and higher cargo volumes during Chuseok, but electricity, gas, and steam (-21 points) and construction (-5 points) declined, resulting in a 2-point drop from the previous month to 79. The non-manufacturing business outlook BSI for next month remained unchanged at 81.

The Bank of Korea stated, "The decline in factory operating rates led to reduced power generation, and rising oil prices were a cause," adding, "In construction, rising costs, delays in construction due to the spread of COVID-19, and decreased orders had an impact."

Meanwhile, the Economic Sentiment Index (ESI), which combines the BSI and the Consumer Sentiment Index (CSI), recorded 104.6 in September, down 0.7 points from the previous month. The cyclical component rose 0.9 points from the previous month to 107.8.

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