Gwangyang Chamber of Commerce Predicts Deterioration with Q3 Business Outlook Index at 48.5

First Half Performance (Operating Profit) Falls Short of Early Year Target by 51.6%

Exchange Rate and Price Volatility Cited as Biggest Risks for Second Half Performance (Operating Profit)

[Asia Economy Honam Reporting Headquarters, Reporter Heo Seon-sik] The Gwangyang Chamber of Commerce and Industry in Jeonnam (Chairman Lee Baek-gu) announced that the ‘2022 Q3 Business Survey Index (BSI)’ based on a survey of about 100 local companies showed the lowest figure of 48.5 since Q3 2020 (34.6).

The Business Survey Index (BSI) quantifies the on-site business sentiment of companies and is expressed on a scale from 0 to 200. A value above 100 indicates that more companies expect the business conditions to improve compared to the previous quarter, while a value below 100 means more companies anticipate a deterioration.

Among the respondents, 60.6% expected business conditions to worsen compared to the previous quarter, 30.3% expected them to remain similar, and only 9.1% anticipated an improvement.

This is interpreted as a result of the prolonged Russia-Ukraine war, accelerating global inflation, and the full-scale U.S. interest rate hikes, which have increased global economic uncertainties.

Unlike the previous quarter (96.8), when expectations for economic recovery were rising, concerns about complex domestic and international factors and uncertainties were fully reflected. The main reasons cited were ‘raw material price increases (32.5%)’ and ‘deterioration of external economic conditions (30.0%).’

Accordingly, for the Q3 outlook, 48.5% of respondents expected sales to decrease, and 57.6% expected operating profits to decline.

Regarding the achievement of the operating profit targets set at the beginning of the year for the first half of Q3, 51.6% reported falling short of the targets, followed by 43.9% who achieved or nearly achieved the targets, and 4.5% who exceeded them.

The biggest domestic and international risks for missing the operating profit targets in the second half were ‘exchange rate and price volatility’ (39.3%), ‘domestic market recession’ (21.3%), ‘deterioration of financing conditions’ (11.5%), ‘continued supply chain bottlenecks due to China lockdowns’ and ‘emerging market instability due to interest rate hikes’ both at 9.8%, followed by ‘policy risks such as corporate burden bills’ (3.3%) and ‘others’ (4.9%).

When asked whether the local economy is expected to revitalize with the launch of the 8th local government administration (July 1), more than half (51.5%) answered ‘not much expectation,’ 42.4% said ‘somewhat expect,’ 4.5% said ‘do not expect,’ and 1.5% said ‘expect.’

The main reason for ‘not expecting’ was the external factor of ‘continued rise in raw material prices (51.8%),’ followed by ‘ongoing labor shortages at company sites’ (19.6%), ‘weakening or absence of key local industries’ (17.9%), ‘economic downturn in major export markets’ (8.9%), and ‘persistent regulations hindering investment’ (1.8%).

Reasons for ‘expecting’ included ‘regulatory improvement policies of the new government’ (38.5%), ‘expansion of corporate regional investment’ (17.9%), ‘expectations for political stability after local elections’ (15.4%), and both ‘expectations for central government financial support’ and ‘new government regional development policies such as regional development special zones’ at 12.8% each.

As priority policies for the next local government, respondents selected ‘fostering regional specialized industries’ (31.2%) and ‘deregulation related to location/facilities/environment’ (22.6%), followed by ‘attracting foreign/corporate investment’ (21.5%), ‘expanding infrastructure such as land/roads/ports’ (12.9%), and ‘supporting local universities and workforce development’ (11.8%).

The biggest concern for the next local government was ‘desk administration that does not consider the field’ (40.3%), followed by ‘inconsistent policy implementation’ (22.7%), ‘populist budget execution’ and ‘insufficient public opinion gathering from local economic actors’ both at 17.6%, and ‘conflicts with central government/local councils’ (1.7%).

A Gwangyang Chamber of Commerce and Industry official said, “If high inflation continues due to the U.S. Federal Reserve’s giant step interest rate hikes and the Bank of Korea’s expected big step rate hike in July, domestic consumption may shrink. Related policy support is needed to prevent economic recession and decline in corporate vitality caused by the triple high factors of global supply chain bottlenecks and a high exchange rate approaching 1,300 won.”

Asia Economy Honam Reporting Headquarters, Reporter Heo Seon-sik hss79@asiae.co.kr

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