Corporate Business Outlook Recovers... Profitability Clouded by Soaring Oil and Raw Material Prices

Expectations Rise for Export Boom Due to Major Countries' Eased Quarantine Measures
Geopolitical Risks Increase, Profitability Falls Below Baseline for 9 Consecutive Months

[Asia Economy Reporter Lee Hyeyoung] As major countries such as the United States and Europe ease quarantine measures, domestic companies' export expectations have increased, leading to a rebound in economic outlook after three months. However, due to geopolitical concerns and soaring international oil and raw material prices, profitability is expected to remain sluggish.

According to the Federation of Korean Industries (FKI) on the 21st, the Business Survey Index (BSI) for 600 major companies based on sales recorded a forecast of 102.1 in March. This surpassed the baseline of 100 for the first time in three months since December last year (100.3), indicating a positive economic outlook.

A BSI above 100 indicates a positive economic outlook compared to the previous month, while below 100 indicates a negative outlook.

The FKI analyzed that as major advanced countries have successively lifted or eased COVID-19 quarantine measures, external demand for domestic products has increased, boosting export momentum expectations. Recently, the United States abolished mandatory mask-wearing across six states including New York, the United Kingdom removed indoor mask mandates and vaccine passes, and France exempted COVID-19 testing for overseas arrivals who have completed vaccination.

Additionally, due to the domestic spread of the Omicron variant with daily new cases hovering around 100,000, demand for medical supplies such as self-treatment drugs and diagnostic kits surged, significantly raising the pharmaceutical BSI forecast (133.3), which contributed to the overall index rebound, the FKI explained.

The March BSI forecasts by sector were positive in four areas: domestic demand (104.2), exports (104.2), investment (101.8), and employment (104.5).

Financial conditions (100.0) were at the baseline, while profitability (99.1) and inventory (101.2) were sluggish. An inventory BSI above 100 indicates negative responses (excess inventory). Profitability has remained below the baseline for nine consecutive months since June last year due to continued rises in international raw material prices.

In particular, the March BSI forecast for the petroleum refining and chemical sectors was 88.5, significantly below the baseline. This is attributed to the recent geopolitical conflict surrounding Ukraine, which caused crude oil prices to surge sharply compared to the beginning of the year, raising concerns over deteriorating profitability (refining margins).

Economic outlooks by industry diverged between manufacturing and non-manufacturing sectors. Manufacturing showed optimism with a March BSI of 104.5 due to export growth expectations, whereas non-manufacturing remained at 99.3.

The FKI explained that the large contraction in face-to-face service sectors such as leisure, accommodation, and dining (66.7) was largely due to the sustained high number of new domestic COVID-19 cases.

Choo Kwangho, head of the FKI Economic Department, stated, "With international raw material prices continuing their high-level march and concerns over the escalation of the Ukraine crisis, the outlook for corporate management is very uncertain. It is necessary to prepare measures to stabilize the supply of key raw materials such as crude oil in case of emergencies, as well as to mitigate the negative impact on corporate profitability through measures such as reducing import tariffs."

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