Mid-sized Business Sector Faces "Worsening Economy in November" Amid 3 Highs Crisis

[Asia Economy Reporter Choi Donghyun] Domestic small and medium-sized enterprises (SMEs) expected the economy in November to worsen compared to the previous month.

The Korea Federation of SMEs announced on the 30th that the '2022 November SME Business Outlook Survey,' conducted from the 14th to the 21st with 3,150 SMEs, showed the November Business Outlook Index (SBHI) at 82.3, down 2.8 points from the previous month. An SBHI above 100 indicates more companies have a positive outlook on business conditions, while below 100 indicates more companies have a negative outlook.

The SBHI had been declining for three consecutive months since June (86.1), then rebounded in September (83.2) and continued to rise for two months. However, it turned downward again after three months. Due to the impact of the three highs?high inflation, high interest rates, and high exchange rates?along with prolonged uncertainty from the Ukraine crisis, global economic slowdown, and weakened consumer sentiment, expectations for the recovery of SMEs' perceived business conditions are forecasted to weaken somewhat.

The manufacturing sector's November business outlook was 83.4, down 2.8 points from the previous month, and the non-manufacturing sector (81.8) also fell by 2.7 points. Construction (79.3) declined by 3.0 points, and the service sector (82.3) was expected to drop by 2.7 points.

Among 22 manufacturing industries, three sectors showed an increase compared to the previous month: beverages (up 12.4 points), other machinery and equipment (up 8.5 points), and printing and reproduction of recorded media (up 5.6 points). Conversely, 19 sectors, including wood and wood products (down 11.1 points), fabricated metal products (down 9.5 points), and electronic components, computers, audiovisual, and communication equipment (down 9.3 points), experienced declines.

In non-manufacturing, construction (82.3→79.3) fell by 3.0 points, and services (85.0→82.3) dropped by 2.7 points due to signs of a winter resurgence of COVID-19.

Within the service sector, four industries rose, led by accommodation and food services (up 3.8 points) and business facility management and business support services (up 2.5 points), while six industries, including arts, sports, and leisure-related services (down 7.5 points) and repair and other personal services (down 5.6 points), declined.

Exports (85.3→86.1) and employment (93.2→93.3), which tend to move inversely, showed slight increases from the previous month. Domestic demand (84.9→83.6), operating profit (82.7→80.0), and financial conditions (83.3→80.5) forecasts declined compared to the previous month.

Comparing the November 2022 SBHI with the average SBHI for November over the past three years by category, manufacturing is expected to improve in overall business conditions, production, domestic demand, operating profit, and financial conditions, except for exports and raw material outlooks. Even the inverse indicators such as facilities, inventory, and employment outlooks are expected to improve compared to the three-year average. Non-manufacturing is also expected to improve in all categories except export outlook.

The main difficulties faced by SMEs this month were domestic demand slump (56.5%) as the highest proportion, followed by rising raw material prices (47.7%), increased labor costs (45.2%), excessive competition among companies (34.6%), and high interest rates (27.5%). The proportion of responses citing increased logistics costs and transportation difficulties (27.3→25.6) and raw material procurement difficulties (9.8→8.6) decreased compared to the previous month, while high interest rates (19.3→27.5) and exchange rate instability (19.0→21.7) increased significantly due to recent consecutive interest rate hikes and exchange rate rises.

Last month, the average operating rate of small and medium manufacturing enterprises was 71.7%, down 0.1 percentage points from the previous month and 0.2 percentage points from the same month last year. Small enterprises fell by 0.4 percentage points to 68.5%, while medium enterprises rose by 0.2 percentage points to 74.8% compared to the previous month.

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