Will the Shadow of the 'Twin Recession' Fall in January Next Year?..."Comprehensive Contraction of Corporate Sentiment"

January BSI Stays at 96.5, Retreats Below 100 for the First Time in 5 Months
Concerns Over Slowing Economic Recovery Amid Domestic and Export Weakness

(Data from Korea Economic Research Institute)

[Asia Economy Reporter Lee Hyeyoung] As the Omicron variant spreads and economic uncertainty rises, an analysis suggests that both domestic demand and exports will slump in January next year, leading to a 'twin recession.' Due to prolonged COVID-19 disruptions, supply chain instability, and soaring freight rates, a comprehensive contraction in corporate sentiment is inevitable.

The Korea Economic Research Institute under the Federation of Korean Industries announced on the 28th that the Business Survey Index (BSI) for 600 major domestic companies showed a forecast of 96.5 for January next year. This is the first time in five months since the August forecast (95.2) that the index fell below the 100-point mark.

A BSI above 100 indicates a positive economic outlook, while below 100 indicates a negative outlook. The January forecast dropping below 100 is attributed to the surge in domestic new COVID-19 cases to around 8,000 due to the Omicron variant and the strengthening of social distancing measures such as restrictions on private gatherings.

The BSI began to slow significantly in early December as new cases surpassed 7,000 for the first time. Although the December BSI actual figure was 100.3, exceeding the baseline, it declined by 1.9 points compared to November (102.2). With the COVID-19 pandemic expected to continue into January next year, the index eventually fell to the 90s.

In particular, the January forecast showed both domestic demand (94.6) and exports (98.4) falling below 100 simultaneously, indicating a bleak outlook for both internal and external business conditions. The Korea Economic Research Institute cited the main causes of domestic demand weakness as the dampening of private consumption sentiment due to strengthened quarantine measures, and export sluggishness as a result of skyrocketing export costs driven by record-high maritime freight rates.

The Shanghai Containerized Freight Index (SCFI) soared to 4,894.6 as of the 17th, marking the highest level since its inception in October 2009. As the COVID-19 crisis enters a prolonged phase, the freight index has shown a steep upward trend with little sign of stabilization.

Financial conditions (96.7) and profitability outlook (92.9) also remained weak. Inventory levels recorded 104.1 (where a value above 100 indicates excessive inventory, a negative response), signaling a challenging management environment. The Korea Economic Research Institute explained that soaring raw material prices and port congestion have compounded difficulties, pushing profitability to its lowest point of the year and inventory to its highest, increasing corporate burdens. The IMF commodity price index reached 183.8 in November, up 33.8% from 137.4 in January this year.

By industry, the January BSI forecast for both manufacturing (94.2) and non-manufacturing (99.4) sectors fell below 100, indicating weakened corporate sentiment. In manufacturing, the automotive and other transportation equipment sector (88.6), metal and metal processing products (85.3), and non-metallic materials and products (86.7) all remained in the 80s, showing significant declines. The Korea Economic Research Institute analyzed that prolonged semiconductor supply disruptions have reduced production and sales volumes for finished car manufacturers, causing a ripple effect on intermediate goods sectors such as tires and primary metals.

In the non-manufacturing sector, industries heavily affected by reduced external activities due to the spread of COVID-19, such as leisure, accommodation, and dining (83.3), as well as wholesale and retail trade (92.7), showed negative forecasts.

Choo Kwangho, head of economic policy at the Korea Economic Research Institute, stated, "With new variants rapidly spreading worldwide, concerns about a slowdown in domestic and international economic recovery are growing. The government should minimize economic damage by expanding the third-dose vaccination rate for the entire population, strengthening quarantine measures to curb the spread of COVID-19 early, and stabilizing raw material supply for businesses."

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