August BSI 86.9...90 Breaks Down After 22 Months 'Concerns Over Economic Slowdown'

[Asia Economy Reporter Park Sun-mi] As domestic and international economic conditions worsen due to high inflation and interest rate hikes, companies' business outlooks are rapidly deteriorating. The Business Survey Index (BSI) for next month fell below 90 for the first time in 22 months.

On the 26th, the Federation of Korean Industries (FKI) surveyed the BSI of the top 600 companies by sales, and the comprehensive business BSI outlook for August recorded 86.9, indicating a very poor business outlook among companies. The comprehensive business BSI falling below 90 is the first time in 22 months since October 2020 (84.6), when COVID-19 was at its peak. In particular, the manufacturing BSI for August dropped to 82.5 in the low 80s due to economic contraction in major export destinations.

The FKI stated, "This year, the BSI has plunged 15.2 points in five months from its peak in March (102.1 → 86.9 in August), which is the largest drop since the MERS outbreak in 2015 (March to July 2015)."

By industry, the August BSI showed simultaneous sluggishness in manufacturing (82.5) and non-manufacturing (91.4) for three consecutive months. It is also the first time in 22 months since October 2020 that both manufacturing and non-manufacturing sectors have recorded a negative outlook for more than three months. The FKI observed that the ongoing high inflation and interest rate hikes are causing concerns about economic downturns across industries.

Looking at the detailed industries' August BSI, only the electronics and telecommunications equipment industry (107.1), which includes semiconductor companies, and pharmaceuticals (100.0) recorded above the baseline of 100 in manufacturing, while no non-manufacturing industries showed a positive outlook (above 100).

Examining the August BSI by sector, employment (103.4) was the only sector to maintain a positive outlook for two consecutive months, while all other sectors (financial conditions 89.6, profitability 89.6, domestic demand 89.9, exports 93.9, investment 98.2, inventory 105.2) showed negative outlooks.

Among these, profitability (89.6) and financial conditions (89.6) fell below the 90 mark for the first time in 24 months since August 2020 (profitability 85.1, financial conditions 88.3). The FKI explained that the sharp rise in the domestic base interest rate has worsened corporate financing conditions, including increased corporate bond yields, and the surge in the won-dollar exchange rate has raised raw material import costs, negatively impacting corporate profitability.

Choo Kwang-ho, head of the FKI Economic Headquarters, said, "As the recent high inflation, high interest rates, and high exchange rates persist, the business environment for companies has become extremely uncertain, increasing the risk of deterioration in investment and employment." He added, "Reducing corporate tax burdens to ease cost pressures and improving unnecessary regulations are necessary to revitalize the private economy."

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