Next Year's Q1 BSI '83'... Early Signs of Perceived Economic Recovery for Next Year

1p Decline Compared to Previous Quarter
'Negative Outlook' Still Prevails

Manufacturing companies nationwide expect that the business climate will not recover until the first quarter of the new year. Amid negative outlooks, there will be a divergence in fortunes between export-oriented and domestic-oriented companies, as well as among different industries.

According to a survey conducted by the Korea Chamber of Commerce and Industry (KCCI) targeting 2,156 manufacturing companies nationwide on the '2024 Q1 Manufacturing Business Survey Index (BSI),' the index was recorded at 83, down 1 point from the previous quarter's 84, marking the third consecutive quarter of decline. However, industries such as pharmaceuticals, cosmetics, and shipbuilding showed predominantly positive outlooks, and companies with a high export ratio are expected to demonstrate signs of recovery.

The BSI indicates that a value above 100 means more companies view the business climate for the quarter positively compared to the previous quarter, while a value below 100 indicates the opposite.

Export Companies’ Outlook Rises Compared to Previous Quarter (83→93), While Domestic Companies’ Outlook Falls Further (84→80)

Looking at company types, the trend of change differed compared to the previous quarter. When analyzed by dividing companies into export-oriented and domestic-oriented based on whether exports account for 50% or more of total sales, the BSI for export companies rose by 10 points to 93 compared to the previous quarter, whereas the BSI for domestic companies fell by 4 points to 80 from 84 in the previous quarter.

Statistics from the National Statistical Office’s Industrial Activity Trends and the Korea Customs Service also highlighted the gap between exports and domestic demand. Exports increased for two consecutive months year-on-year in terms of value, and the trade balance recorded a surplus for six consecutive months starting in June. On the other hand, domestic demand showed a decline for four consecutive months, with retail sales in October down 4.4% compared to the same period last year.

By industry, only pharmaceuticals (115), cosmetics (113), and shipbuilding (103) exceeded the baseline of 100, indicating a predominantly positive outlook. In pharmaceuticals, many companies continued to have a positive outlook due to new drug development efforts. Additionally, cosmetics saw the largest increase compared to the previous quarter, turning to a positive outlook in the new year, influenced by the spread of K-Beauty.

Conversely, industries such as steel (72) and non-metallic minerals (67) showed predominantly negative outlooks due to the construction downturn and rising raw material prices. The key industry IT (84) rose compared to the previous quarter due to expectations of semiconductor inventory depletion and demand recovery for some items but still remained below the baseline. Also, the automotive sector (87) continued to show a negative outlook, declining from the previous quarter due to increased purchasing burdens from high interest rates and low-price competition from foreign electric vehicles, including those from China.

The Korea Chamber of Commerce and Industry in Jung-gu, Seoul, where the Commerce Day ceremony was held on the 31st. Photo by Kang Jin-hyung aymsdream@

Two out of Three Companies Expect to Fall Short of This Year’s Operating Profit Targets... Domestic Demand Slump (53.5%) Cited as Main Cause

Many companies anticipated that their 2023 business performance would fall short of the targets set at the beginning of the year. Regarding operating profit, 63.5% of companies expected to miss their targets, with more than half of them (32.4%) expecting to fall short by more than 10%. The primary reason cited for failing to meet operating profit targets was ‘domestic demand slump’ at 53.5%, followed by ‘raw material prices’ at 19.1%, ‘export slump’ at 18.1%, ‘high interest rates’ at 4.3%, and ‘high exchange rates’ at 1.4%.

When asked about this year’s investment performance, 49.2% of companies expected to fall short of the targets planned at the beginning of the year, revealing that half of the companies would not meet their investment goals this year.

Kim Hyun-soo, head of the Economic Policy Team at KCCI, said, “With a forecast of a low start and strong finish next year, economic recovery is expected from the second half, so difficulties centered on domestic demand will continue in the first half. It is important not only to manage prices but also to strengthen private sector dynamism through policies that activate consumption and investment, so that the psychology of households and companies is not excessively depressed by high inflation and interest rates.”

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