Survey on Business Outlook in Changwon Area ... Mixed Prospects by Industry

67.1% of Responding Companies Fail to Meet First Half Performance Targets

Domestic Economic Slump a Major Factor

A survey on the business outlook for the third quarter in the Changwon area of Gyeongnam revealed mixed results by industry, with most companies expected to fall short of their performance targets due to sluggish domestic demand.

The Changwon Chamber of Commerce and Industry announced the results of the "2023 3rd Quarter Changwon Area Business Outlook Survey," conducted from June 1 to 26 among manufacturing companies in the Changwon region. Out of 157 respondents, the Business Survey Index (BSI) was recorded at 94.9, indicating that more companies have a negative outlook for the third quarter. The performance BSI based on the second quarter results was also below the benchmark at 91.8.

Changwon Chamber of Commerce and Industry.
Photo by Lee Seryeong

While recovery is underway mainly in transportation equipment manufacturing sectors such as automobiles, shipbuilding, railroads, and aviation, the prolonged domestic economic downturn, high exchange rates, high interest rates, and high inflation are slowing profitability recovery. Additionally, trade volume with China, one of Changwon's largest trading partners, has not met expectations even after reopening, leading to a conservative forecast for the third quarter.

The outlook BSI by category fell below the benchmark in all areas: workplace and factory operation (99.4), sales (94.6), facility investment (89.3), supply chain stability (88.1), and operating profit (82.7). Factory operation and related sales were slightly weak, but low operating profit forecasts and supply chain instability are expected to negatively impact facility investment.

By industry, the sectors most optimistic about the third quarter of 2023 are other transportation equipment manufacturing such as shipbuilding, aviation, and railroads (141.7), and transportation equipment manufacturing including automobiles and motorcycles (113.2). Conversely, machinery equipment manufacturing (97.7), steel and metal manufacturing (76.9), and electrical and electronics manufacturing (76.9) fell below the benchmark, showing a negative outlook.

The divergence in BSI outlooks between transportation equipment and other manufacturing sectors is due to increased production driven by rising domestic and export performance of domestic finished vehicles, visible recovery in the long-struggling shipbuilding industry, and strong performance in aviation manufacturing with secured orders alongside defense industry exports, as well as successful bids in railroad manufacturing.

On the other hand, steel and metal product manufacturing, which has a high import ratio, is struggling to secure profitability due to rising international raw material prices and a rising exchange rate trend. Electrical and electronics manufacturing continues to have a negative outlook for the third quarter of 2023 due to deteriorating domestic and international consumer sentiment and seasonal off-season effects.

When asked whether they expect to achieve their operating profit targets for this year, 42.4% of respondents answered "slightly below target (less than 10% below target)," and 24.7% said "significantly below target," indicating that 67.1% expect to miss their targets.

Meanwhile, 22.2% responded that they expect to "meet the target level," 10.1% said they would "slightly exceed the target," and 0.6% said they would "significantly exceed the target," with only 10.7% expecting to surpass their targets overall.

Regarding the factors that most influenced the achievement of operating profit targets in the first half of the year, 32.9% of respondents cited "domestic market conditions" as the most significant, followed by "raw material prices" at 28.5%, "export market conditions" at 27.2%, "high interest rate situation" at 4.4%, and "high exchange rate situation" at 3.2%. It was found that demand decreases in domestic and export markets had a greater impact on operating profit than increased production costs due to rising raw material prices and interest rate hikes (deterioration of profitability).

With the Changwon manufacturing sector's third-quarter outlook BSI below the benchmark, when asked about domestic and international risks that could negatively affect second-half performance, 36.5% of respondents cited "continued high inflation and raw material prices" as the greatest concern. This was followed by "slowing domestic consumption" at 19.3%, "continued export sluggishness" at 14.0%, "continued high interest rate situation" at 10.2%, "disruptions in raw and subsidiary material supply" at 7.7%, "continued high exchange rate situation" at 5.6%, "labor-management conflicts" at 2.5%, and "environmental and safety issues" at 2.5%. The proportion citing "others," such as the Russia-Ukraine war, was 1.8%.

A representative from the Changwon Chamber of Commerce and Industry stated, "The improvement of the negative domestic and international business environment, including the three highs (high inflation, high interest rates, high exchange rates), trade disputes among countries, and supply chain instability, is progressing slowly. Except for industries with clear improvements, overall economic recovery is expected to take some time."

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