Corporate Sentiment Hits Worst in 2 Years 2 Months... Cold Wind for Next Year

Bank of Korea Announces December Business Survey Index
Economic Conditions Worsen for Four Consecutive Months Since August
Economic Uncertainty Forecasts Further Decline in January Next Year

The cold wind blowing through domestic companies is growing stronger. As global high interest rates increase economic uncertainty, this month's corporate sentiment has fallen to its worst level in 2 years and 2 months. Since the high interest rate stance of major countries and high inflation rates are expected to continue for a considerable period, this trend is expected to persist until the first half of next year.

According to the December Business Survey Index (BSI) released by the Bank of Korea on the 28th, the BSI for business performance across all industries this month recorded 75, down 1 point from the previous month. The sentiment has worsened for four consecutive months since August (81), falling to the lowest level since October 2020 (74). This index reflects business owners' judgments and outlooks on the current business situation, and a value below 100 indicates poor business conditions.

By industry, the deterioration in manufacturing sentiment was clear. The manufacturing BSI dropped 3 points from the previous month to 71, slightly higher than September 2020 (68), when the COVID-19 outbreak was severe. Among detailed sectors, electronics, video, communication equipment, chemical substances and products, and other machinery equipment saw significant declines. By company size, large companies (-5 points), small and medium enterprises (-2 points), export companies (-1 point), and domestic companies (-5 points) all experienced poor business sentiment.

The non-manufacturing BSI declined in construction (-6 points), real estate (-6 points), and wholesale and retail (-2 points), but increased in information and communication (10 points), resulting in the same level as the previous month. Although the information and communication sector improved due to seasonal demand increases, liquidity deterioration from the housing market slowdown, sluggish domestic demand, and weakened consumer sentiment continue, causing the non-manufacturing sector to also experience a freeze in business conditions.

Kim Dae-jin, head of the Corporate Statistics Team at the Bank of Korea, explained, "Large companies experienced poor business conditions in chemical substances, chemical products, and primary metals sectors," and added, "In the non-manufacturing sector, the information and communication industry sees demand in December due to year-end budget spending."

Both manufacturing and non-manufacturing companies cited uncertain economic conditions as their biggest challenge. Manufacturing companies pointed to rising raw material prices as the next biggest issue, while non-manufacturing companies cited labor shortages and rising labor costs as management difficulties. With the continuation of high interest rates in major countries such as the U.S. and Europe, the global economic growth rate is expected to fall to around 2% next year, preventing both export and domestic companies from recovering their business sentiment.

Accordingly, the deterioration in corporate sentiment is expected to be unavoidable until January next year. According to the Bank of Korea, the BSI for all industries in January next year is expected to fall 4 points from this month to 70. The Bank of Korea forecasts poor business conditions centered on chemical substances and products, other machinery equipment, automobiles in manufacturing, and wholesale and retail, professional, scientific and technical services, and electricity, gas, and steam in non-manufacturing.

The December Economic Sentiment Index (ESI), which reflects the BSI and the Consumer Sentiment Index (CSI), recorded 91.7, up 0.3 points from the previous month. The ESI is an index showing the economic sentiment of all private economic agents. Although the figure rose slightly over the month, it still remains below 100, indicating that the economy is worse than the historical average.

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