Manufacturing Sentiment Hits Worst in 2 Years 7 Months... Impact of Semiconductor Demand Decline

February All Industry Business Survey Index (BSI) Remains Unchanged from Previous Month

A production line of a semiconductor factory (Asia Economy DB)

[Asia Economy Reporter Seo So-jung] As the semiconductor industry, a key sector in South Korea, deteriorates, the manufacturing sector's business sentiment has fallen to its worst level in 2 years and 7 months. Despite the decline in manufacturing business conditions due to economic uncertainty this month, domestic companies' business sentiment remained at the same level as the previous month, buoyed by expectations of improved consumer sentiment in the non-manufacturing sector following the lifting of indoor mask mandates.

According to the Business Survey Index (BSI) for February released by the Bank of Korea on the 22nd, the BSI for business conditions across all industries this month stood at 69, unchanged from the previous month. This level is the lowest in 2 years and 5 months since September 2020 (64). The index reflects business owners' assessments and outlooks on current business conditions, with values below 100 indicating poor business conditions.

By sector, the manufacturing business conditions BSI fell by 3 points from the previous month to 63. The manufacturing BSI has declined for three consecutive months, reaching its lowest level in 2 years and 7 months since July 2020 (59).

Among detailed sectors, declines were centered on electronic, video, and communication equipment (-10 points), other machinery equipment (-10 points), and primary metals (-5 points). The electronic, video, and communication equipment sector suffered from increased inventory and decreased sales due to reduced semiconductor demand, while the primary metals sector declined due to reduced demand caused by rising raw material prices and slowing conditions in upstream industries such as construction, automobiles, and shipbuilding.

By company size, large enterprises (-4 points), small and medium enterprises (-1 point), export companies (-5 points), and domestic companies (-1 point) all saw declines compared to the previous month.

The non-manufacturing business conditions BSI rose by 2 points from the previous month to 73, driven by increases in wholesale and retail trade (+5 points), transportation and warehousing (+6 points), and business facility management and rental services (+4 points). This is the first increase in the non-manufacturing BSI in six months since August 2022.

In wholesale and retail trade, business conditions improved due to better consumer sentiment following the lifting of indoor mask mandates and increased order volumes from client companies. The transportation and warehousing sector rose as air transport sales increased with growing demand for overseas travel, and business facility management and rental services improved due to increased service sales from higher labor demand at manpower supply firms and more business days.

The BSI for all industries next month is expected to rise by 3 points from this month to 71. Chae Hee-jun, head of the Bank of Korea's Statistics Survey Team, commented on the outlook, saying, "Key manufacturing sectors such as semiconductors and primary metals are influenced by demand in upstream industries like home appliances and automobiles, but there is not yet a clear sign of demand recovery, so close monitoring is necessary." He added, "There remains a possibility that manufacturing and non-manufacturing sectors will show divergent trends in the future."

The Economic Sentiment Index (ESI) for February, which incorporates the Consumer Sentiment Index (CSI) into the BSI, recorded 91.6, up 1.5 points from the previous month. The ESI reflects the economic sentiment of all private economic agents.

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