First Business Sentiment of the New Year at '74'... Dropping to 'Corona Level'

BSI at 74 in Q1 Next Year... Down 15p YoY
Clear Decline in 'Negative Outlook' for 6 Consecutive Quarters

Recent Trends in KCCI BSI

[Asia Economy Reporter Jeong Dong-hoon] The corporate sentiment for the new year has deteriorated to the level seen two years ago during the height of the COVID-19 pandemic. Since peaking in the third quarter of last year, there has been a negative outlook for six consecutive quarters, with a clear downward trend.

According to a recent survey by the Korea Chamber of Commerce and Industry (KCCI) of 2,254 manufacturing companies nationwide on the Business Survey Index (BSI), the outlook for the first quarter of next year dropped 7 points from the previous quarter and 15 points from the same period last year, settling at '74'. This is similar to the BSI of 75 in the first quarter of 2021, when the impact of the COVID-19 pandemic was significant. At that time, the economy was recovering from the shock of COVID-19, whereas now the decline in corporate sentiment is becoming more pronounced.

The Business Survey Index (BSI) indicates that a value above 100 means more companies view the current quarter's business conditions positively compared to the previous quarter, while a value below 100 indicates the opposite.

Only Pharmaceuticals at '104' Show Positive Outlook... Major Export Items Such as Refining & Petrochemicals '64', IT & Home Appliances '68', Steel '68' Underperform

BSI by Industry for Q1 2023

A KCCI official stated, "Companies are facing difficulties such as increased interest burdens due to high interest rates and worsening financing conditions. Additionally, external factors such as war, US-China competition, geopolitical risks, rising raw material and energy prices, and global economic slowdown are overlapping, leading to a negative outlook for the new year."

By industry, except for pharmaceuticals (104), which continue to benefit from COVID-19-related demand, all sectors recorded a BSI below 100. Non-metallic minerals (60) and refining & petrochemicals (64), which are highly dependent on raw materials, were particularly weak. This is attributed to increased manufacturing costs due to high raw material prices, oil price volatility, and high exchange rates, along with weakened demand from major countries.

Export-driven sectors such as IT & home appliances (68), steel (68), and machinery (77), including semiconductors, also showed relatively weak outlooks. Domestic-oriented industries such as publishing & printing (52), furniture (67), textiles & apparel (69), and food & beverages (71) were also among the sectors with a poor outlook for the new year.

Regionally, the corporate sentiment index was below the benchmark of 100 in all areas. Gangwon (55), with a high proportion of non-metallic minerals, recorded the lowest figure, while Daegu (56), Incheon (64), and Gyeonggi (68), regions with many small and medium industrial complexes, also showed high negative outlooks. Regions with relatively fewer negative forecasts included Busan (93), Sejong (89), and Ulsan (85).

BSI by Region for Q1 2023

Bleak Outlook for Achieving This Year's Management Goals... Over Half of Companies Expect to Miss Sales and Operating Profit Targets

Many companies also expected their business performance this year to fall short of targets. When asked whether they could achieve the sales targets set at the beginning of the year, 40.3% of respondents answered 'slightly below target (within 10%)', and 17.9% answered 'significantly below target', meaning that over half (58.2%) of companies expect to miss their sales targets. Only 26.1% expected to meet their targets, and just 15.7% anticipated exceeding them.

The outlook for operating profit was even worse due to the impact of high interest rates and inflation. When asked about the prospect of achieving operating profit targets set at the beginning of the year, 42.8% of respondents answered 'slightly below target (within 10%)', and 23.6% answered 'significantly below target', indicating that two out of three companies (66.4%) expect to miss their operating profit goals. Only 21.3% expected to meet the targets, and 12.3% anticipated exceeding them.

The KCCI emphasized, "Many forecasts predict a difficult economy in the new year, and there is a risk of entering a prolonged low-growth phase. Despite these challenges, policy support must be firmly provided to stimulate corporate investment and expand export financing through groundbreaking tax and financial incentives so that companies can seize opportunities and regain vitality."

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