FKCCI "April Business Sentiment Index 99.1"… Ukraine Impact Causes BSI to Fall Below 100 Again

Profitability Outlook 96.8... Sluggishness Due to Rising International Commodity Prices Amid Prolonged Russia-Ukraine War

[Asia Economy Reporter Sunmi Park] The business outlook for companies has deteriorated again due to the aftermath of Russia's invasion of Ukraine.

On the 30th, the Federation of Korean Industries (FKI) conducted a Business Survey Index (BSI) survey targeting the top 600 companies by sales, and the April outlook recorded 99.1. This is the first time in a month that the index fell below the baseline of 100 again after surpassing 100 last month (102.1). The FKI explained that the prolonged Russia-Ukraine war has caused a surge in international raw material prices and lockdowns in major Chinese cities (Shanghai, Shenzhen), which negatively affected corporate profitability and exports.

By sector, the April BSI outlook was positive in three areas: employment (107.5), investment (103.2), and domestic demand (102.9). On the other hand, profitability (96.8), exports (97.4), financial conditions (97.4), and inventory (100.9) were expected to perform poorly.

The FKI interpreted the worsening profitability outlook (96.8) as a result of rising international raw material prices. In particular, due to the prolonged war and concerns over export sanctions on Russian raw materials by major countries, prices of crude oil and nickel?where Russia holds a significant share of global production?soared, causing the petrochemical (75.9) and automobile & transportation equipment (81.3) sectors to show the weakest business outlook among manufacturing industries.

Exports (97.4) were also negatively impacted by the Russia-Ukraine war. The FKI noted that since South Korea was included in Russia's list of unfriendly countries, Korean companies face a high risk of exchange losses if export payments from Russia are made in rubles.

Following the war, lockdowns in major Chinese cities also acted as a negative factor. The FKI stated that due to the recent spread of COVID-19, Shanghai and Shenzhen?home to the world's first and fourth largest container ports?were locked down, raising concerns among companies about blocked export routes to China, their largest trading partner.

The business outlook differed between manufacturing and non-manufacturing sectors. Due to concerns over worsening profitability and exports, the manufacturing sector's April BSI (94.8) fell below 100, while the non-manufacturing sector's April BSI was optimistic at 104.6. The FKI explained that the construction sector (115.4) showed strong improvement due to expectations of eased real estate regulations following the presidential election, contributing to the positive outlook of the overall non-manufacturing index.

Choo Kwang-ho, head of the FKI Economic Headquarters, pointed out, “The Russia-Ukraine war is prolonging longer than initially expected, and China, our largest export market, is maintaining strict quarantine policies, which could severely damage our companies,” adding, “It is necessary to strengthen support for companies highly exposed to external risks, such as those in the chemical and automobile sectors and export companies.”

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