Russian War Impact and China Lockdown Cause Gloom for Korean Companies... Manufacturing Outlook Hits 19-Month Low

BSI May Outlook at 97.2 Falls Below Baseline for Two Consecutive Months
Manufacturing Outlook Records 93.1 Due to Ukraine and China Situations

[Image source=Yonhap News]

[Asia Economy Reporter Kim Jin-ho] The prolonged situation caused by Russia's invasion of Ukraine continues to have a negative impact on the Korean economy. In particular, the manufacturing sector's outlook recorded its lowest point in 19 months due to the Ukraine crisis as well as supply chain disruptions caused by the Shanghai lockdown.

According to the Business Survey Index (BSI) conducted by the Federation of Korean Industries (FKI) targeting the top 600 companies by sales, the May outlook recorded 97.2. This is the second consecutive month below the baseline (100), following last month's 99.1.

The FKI analyzed that the main cause of the poor economic outlook is the contraction of the domestic and global economy due to the prolonged Ukraine crisis.

By industry, the BSI showed a polarization in economic outlook between manufacturing and non-manufacturing sectors for two consecutive months. The manufacturing outlook for May recorded 93.1, continuing its sluggish trend from April (94.8). The non-manufacturing outlook for May was optimistic at 102.0, similar to April's 104.6.

The manufacturing outlook (93.1) marked the lowest point in 19 months since October 2020 (83.4), influenced by soaring raw material and energy prices due to the Ukraine crisis and supply chain disruptions caused by the Shanghai lockdown in China.

The FKI stated that among manufacturing sectors, the outlook for automobile and transportation equipment industries, as well as non-metallic materials and products industries, was the most sluggish. This is attributed to the continued high prices of key raw materials such as iron ore and thermal coal, along with concerns over disruptions in intermediate goods imports from China due to the prolonged lockdown of Shanghai, a logistics hub in China.

Looking at the BSI by sector, domestic demand (104.3), investment (104.0), and employment (105.9) showed positive outlooks, while profitability (96.3), financial conditions (96.6), exports (99.4), and inventory (100.9) showed negative outlooks.

The FKI cited rising production costs due to raw material price increases and increased logistics costs caused by port congestion as the main reasons for poor profitability. For the deterioration in financial conditions, it pointed to the increased interest burden from the base interest rate hikes and difficulties in fund procurement due to rising bond yields. In fact, the market interest rate for 3-year corporate bonds was 3.03% in March, up 0.94 percentage points compared to the same month last year.

Choo Kwang-ho, head of the FKI Economic Headquarters, argued, "Efforts should be made to minimize the deterioration of corporate profitability through lowering import tariffs on major imported raw materials and easing tax burdens, and to stabilize supply chains by strengthening cooperative networks with major trading countries."

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