Gwangju Region Manufacturing Industry's Economic Sentiment for Q1 Next Year: 'Cloudy'

[Asia Economy Honam Reporting Headquarters Reporter Park Jin-hyung] Manufacturing companies in the Gwangju area forecast a sharp contraction in their perceived business conditions in the first quarter of next year.

The Gwangju Chamber of Commerce and Industry (Chairman Jeong Chang-seon) announced that the Business Survey Index (base value=100) for the first quarter of 2022, surveyed among 127 manufacturing companies in the Gwangju region, was recorded at 92, down 21 points from the previous quarter (113).

This is interpreted as local companies being unable to fully overcome the economic downturn caused by COVID-19, and concerns are growing over prolonged demand decline due to economic activity contraction caused by the spread of the Omicron variant and strengthened social distancing measures.

The actual performance for the fourth quarter was ‘95’, still below the base value (100) due to increased local COVID-19 infections and sluggish domestic and export-import activities, showing poor figures.

Industry-specific forecasts for the first quarter of next year show that the food and beverage (125) and machinery & mold (111) sectors exceed the base value (100), indicating improvement, while rubber & chemical & plastic (91), non-metallic minerals & glass (75), steel & metal processing (60), IT & electrical & electronics (89), and automobile & parts (83) sectors fall below the base value.

The food and beverage (125) sector expects improved business conditions compared to the previous quarter due to holiday season expectations and increased purchases of convenience foods, while the machinery & mold (111) sector anticipates economic growth driven by increased orders, production, and investment activities.

On the other hand, the rubber & chemical & plastic (91) sector did not see improvement in perceived business conditions due to decreased orders from clients and deteriorating profit structures caused by rising raw material prices, and the non-metallic minerals & glass (75) sector expects worsening conditions due to prolonged COVID-19 and the onset of the seasonal off-season.

The steel & metal processing (60) sector fell below the forecast due to decreased order volumes, rising raw material prices, and sluggish domestic demand, while the IT & electrical & electronics (89) sector finds it difficult to expect improvement due to continuous raw material price increases and semiconductor parts supply instability.

The automobile & parts (83) sector forecasts a decline in perceived business conditions despite increased global market demand due to semiconductor supply instability.

By company size, large and medium-sized enterprises (82) expect sluggish business conditions due to increased domestic and international economic uncertainties caused by the spread of COVID-19 infections, and small and medium-sized enterprises (91) also foresee worsening perceived business conditions compared to the previous quarter due to concerns over sales declines caused by reduced orders from primary contractors.

Regarding export status, export companies (89) fell below the base value (100) due to weakened consumer sentiment and expected decreases in private investment caused by the global surge in COVID-19 cases, and domestic companies (90) also remain sluggish due to rising production costs and domestic demand contraction.

Despite the new year approaching, most local manufacturing companies have yet to establish their business plans for next year.

When asked about the establishment of next year's business plans, the majority of companies responded that they ‘have not established investment plans (73.2%)’, while only 26.7% answered that they had ‘completed establishment’.

The reasons for delayed business plan establishment were ‘difficulty in setting business goals and strategies due to increased market uncertainty (54.0%)’, ‘delays in planning due to focus on crisis response (16.0%)’, ‘no particular reason (12.6%)’, ‘delays in reviewing new business initiatives (9.2%)’, and ‘others (8.0%)’ (multiple responses allowed).

Regarding internal and external risks expected to affect next year's business management, the responses were ‘rising raw material prices (84.3%)’, ‘continued impact of COVID-19 (52.8%)’, ‘production disruptions due to supply chain issues such as parts procurement (44.1%)’, ‘interest rate hikes domestically and in the U.S. (22.0%)’, and ‘burdens related to environmental issues such as carbon reduction (3.1%)’ in that order.

When asked about the priority areas to consider for the future of South Korea according to local companies, the largest share (79.5%) answered ‘economic revitalization’, followed by ‘real estate stabilization (24.4%)’, ‘environmental issue response (11.8%)’, ‘international relations response (10.2%)’, ‘political advancement (7.9%)’, and ‘welfare expansion (6.3%)’.

Choi Jong-man, the full-time vice chairman, stated, “Due to the global resurgence of COVID-19 and rising raw material prices, uncertainties in the domestic and international business environment continue, and the perceived business conditions of local manufacturing companies are not recovering easily,” adding, “It is urgent to enhance corporate vitality through policy efforts to expand domestic demand and increase exports, regulatory relaxation, and tax support.”

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