Gwangju Region Manufacturing Industry 2Q Sentiment Remains in Recession

[Asia Economy Honam Reporting Headquarters, Reporter Park Jin-hyung] The business sentiment among manufacturing companies in the Gwangju region has been negative, falling below the baseline (100) for the second consecutive quarter.

The Gwangju Chamber of Commerce and Industry announced that the Business Survey Index (BSI, baseline=100) for the second quarter of this year, surveyed among 121 manufacturing companies in the Gwangju area, was recorded at '99'.

This is interpreted as a result of local companies failing to overcome the economic downturn caused by COVID-19, compounded by rising raw material prices and supply instability due to the Russia-Ukraine conflict, leading to concerns over increased product price volatility and prolonged economic recession causing sales declines.

By industry, the outlook was positive for ‘Food & Beverage (114)’, ‘Glass & Non-metallic Minerals (117)’, ‘Machinery & Molds (128)’, and ‘IT, Electrical & Home Appliances (110)’, while ‘Rubber & Chemicals (82)’, ‘Steel & Metal Processing (75)’, and ‘Automobiles & Parts (80)’ sectors fell below the baseline.

The ‘Food & Beverage (114)’ sector expects improved conditions compared to the previous quarter due to eased private gatherings and increased purchases of convenience foods. The ‘Glass & Non-metallic Minerals (117)’ sector anticipates economic growth driven by the construction industry's peak season and expectations for expanded housing supply.

The ‘Machinery & Molds (111)’ sector expects improved business conditions due to increased order volumes, production, and investment activities. The IT, Electrical & Electronics (110) sector forecasts a positive second quarter, supported by the continued stay-at-home trend due to the Omicron variant spread and the launch of customized new products.

Conversely, the ‘Rubber, Chemicals & Plastics (82)’ and ‘Steel & Metal Processing (75)’ sectors are unlikely to see improved business sentiment due to decreased order volumes and rising raw material costs. The ‘Automobiles & Parts (80)’ sector expects worsening sentiment due to factory shutdowns caused by the Ukraine conflict and Russian sanctions, rising raw material prices, and semiconductor supply instability.

By company size, large and medium-sized enterprises (129) expect improvement due to global economic recovery trends and new product launches increasing demand, whereas small and medium-sized enterprises (92) foresee worsened sentiment compared to the previous quarter due to cost burdens from rising raw material prices and concerns over sales declines.

Regarding export status, both export companies (86) and domestic companies (90) predicted negative outcomes due to deteriorating domestic and international conditions, leading to sluggish orders and profitability concerns.

When asked about the current situation of companies amid global inflation concerns, the majority responded that ‘operating profits are maintained but have decreased in scale compared to before (63.7%)’, followed by ‘turned to operating losses (35.3%)’.

As countermeasures, ‘efforts to reduce production costs (64.0%)’ ranked highest, followed by ‘reflecting cost increases in product prices (39.0%)’, ‘no special countermeasures (21.0%)’, and ‘finding alternative import sources (10.0%)’.

Regarding internal and external risks expected to impact business management, ‘increased production costs due to rising oil and raw material prices (83.5%)’ was the highest response, followed by ‘domestic demand slump due to ongoing COVID-19 effects (57.0%)’, ‘increased interest expenses due to domestic interest rate hikes (40.5%)’, ‘production disruptions due to global supply chain issues (19.8%)’, ‘increased management uncertainty due to intensified exchange rate fluctuations (17.4%)’, ‘implementation of corporate burden laws such as the Serious Accident Punishment Act (14.9%)’, ‘worsening export difficulties due to international tensions (10.7%)’, ‘burdens related to environmental issues such as carbon emission reduction (4.1%)’, and ‘others (1.7%)’.

When asked which areas the next government should focus on among economic issues, 57.9% responded ‘creating a business-friendly environment through deregulation’.

This was followed by ‘improving labor-related systems such as minimum wage and 52-hour workweek (52.1%)’, ‘addressing international relations including resolving global supply chain disruptions (35.5%)’, ‘expanding support for business transformation and restructuring to promote upgrading of existing industries (26.4%)’, ‘expanding support for new technology development and fostering future industries (26.4%)’, ‘improving workforce supply and demand including nurturing talent for new industries (11.6%)’, and ‘activating carbon neutrality implementation through support for eco-friendly R&D (8.3%)’.

Choi Jong-man, Executive Vice Chairman, stated, “Due to rising raw material prices caused by the Ukraine conflict and the widespread spread of Omicron, the business sentiment of local manufacturing companies has not been able to recover easily,” adding, “Proactive responses by companies to global economic uncertainties and the establishment of support measures in trade, investment, and finance to expand domestic demand and increase exports are necessary.”

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