Gwangju Region Manufacturing Industry 3Q Sentiment Remains in Recession

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

The Gwangju Chamber of Commerce and Industry announced on the 11th that the Business Survey Index (BSI, baseline=100) forecast for the third quarter of 2022, surveyed among 122 manufacturing companies in the Gwangju area, was recorded at '75.'

Since the first quarter of last year, the BSI index had shown an upward trend, but this year the decline has deepened. This is interpreted as the prolonged Russia-Ukraine war causing a sharp rise in raw material prices and supply disruptions, combined with interest rate hikes and exchange rate increases leading to product price instability and growing concerns about an economic recession, further worsening the sentiment among local manufacturers.

Meanwhile, the actual performance in the second quarter was '90,' still below the baseline (100) due to supply chain bottlenecks and sluggish domestic and export-import markets, showing poor figures.

The third quarter outlook by industry showed that ‘IT·Electric·Home Appliances (110)’ and ‘Machinery·Mold (100)’ sectors exceeded the baseline, while ‘Food & Beverage (67)’, ‘Rubber·Chemicals (27)’, ‘Glass·Non-metallic Minerals (88)’, ‘Steel·Metal Processing (47)’, ‘Automobiles·Parts (58)’, and ‘Others (83)’ sectors fell below the baseline.

The ‘IT·Electric·Home Appliances (110)’ sector is expected to see economic improvement due to increased demand for premium products and sales growth entering the seasonal peak. The ‘Machinery·Mold (100)’ sector anticipates continued growth in orders from the previous quarter, expecting economic recovery.

Conversely, the ‘Food & Beverage (67)’ sector forecasts worsening sentiment due to rising food material prices leading to higher sales prices and concerns over sales decline. The ‘Rubber·Chemicals (27)’, ‘Glass·Non-metallic Minerals (88)’, ‘Steel·Metal Processing (47)’, and ‘Others (83)’ sectors expect no improvement in sentiment as rising manufacturing costs and sluggish domestic and export markets act as downward factors.

The ‘Automobiles·Parts (58)’ sector foresees further deterioration in sentiment due to semiconductor supply shortages and increased global economic uncertainty causing demand decline concerns.

By company size, both large and medium-sized enterprises and small and medium enterprises recorded ‘73,’ reflecting concerns over sales decline due to rising manufacturing costs, expecting sentiment to worsen compared to the previous quarter.

Regarding export status, exporting companies (70) fell below the baseline (100) due to expected weakened consumer sentiment from inflation concerns and reduced private investment, while domestic companies (75) are expected to remain sluggish due to rising production costs and domestic market contraction.

When asked about the first half operating profit compared to plans made at the beginning of this year, the majority of companies responded ‘below target (60.7%),’ followed by ‘achieved or close to target (36.8%),’ and ‘exceeded target (2.5%).’

Among companies that responded ‘below target’ for the first half performance, the biggest internal and external risk for the second half was ‘exchange rate and price volatility (31.7%),’ followed by ‘domestic market recession (26.9%),’ ‘continued supply chain bottlenecks such as China lockdowns (14.5%),’ ‘emerging market instability due to interest rate hikes (10.3%),’ ‘deterioration of financing conditions (10.3%),’ ‘policy risks such as corporate burden bills (3.4%),’ and ‘others (2.9%).’

On the other hand, among companies that responded ‘achieved or close to target’ for the first half, 42.0% cited ‘domestic market recovery’ as the reason, followed by ‘improved external conditions such as increased global demand (30.0%),’ ‘improved profitability due to exchange rate and raw material supply (15.0%),’ ‘others (11.6%),’ ‘improved financing conditions (6.7%),’ and ‘government corporate support policies (1.7%).’

Regarding whether the regional economy will be revitalized with the launch of the 8th local government administration, 67.0% answered ‘not much expectation,’ followed by ‘somewhat expect (22.3%),’ ‘do not expect (10.0%),’ and ‘expect (0.7%).’

Among companies that responded ‘do not expect or not much expectation’ (multiple responses allowed), the reasons were ‘continued rise in raw material prices (87.1%),’ ‘ongoing labor shortages at corporate sites (29.0%),’ ‘weakening or absence of key regional industries (29.0%),’ ‘sluggish major export markets (21.5%),’ ‘persistent regulations blocking investment (7.5%),’ and ‘others (2.2%).’

Conversely, among companies that responded ‘somewhat expect or expect,’ 50.0% cited ‘new government’s regulatory improvement policies,’ followed by ‘new government regional development policies such as corporate development zones (32.4%),’ ‘expectation of central government financial support (29.4%),’ ‘expectation of political stability after local elections (14.7%),’ ‘expansion of corporate regional investment (14.7%),’ and ‘others (2.9%).’

Regarding the policies that the newly launched local government should prioritize, responses were ‘fostering regional specialized industries (51.2%),’ ‘resolving regulations related to location, facilities, and environment (48.8%),’ ‘attracting foreign and corporate investment (42.1%),’ ‘expanding infrastructure such as land, roads, and ports (16.5%),’ ‘supporting regional universities and workforce development (10.7%),’ and ‘others (1.7%).’

When asked about the issues the new local government should be most cautious about, 78.5% answered ‘desk administration that does not consider the field,’ followed by ‘inconsistent policy implementation (46.3%),’ ‘insufficient public opinion gathering from regional economic actors (33.9%),’ ‘populist budget execution (28.9%),’ and ‘conflicts with central government and local councils (18.2%).’

Choi Jong-man, full-time vice chairman, stated, “The sentiment among local manufacturers is deteriorating due to rising production costs, exchange rate volatility, and high inflation,” adding, “It is necessary to prepare extraordinary government-level measures and support such as stabilizing raw material prices, tax improvement support, export finance, and logistics cost support to respond to global economic uncertainties.”

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