"Rising External Uncertainty"... Business Sentiment Index Drops Most in 10 Months

Bank of Korea's 'August Business Survey Results and Economic Sentiment Index'
All-industry CBSI Drops Most in 10 Months
Manufacturing, Non-manufacturing, Export and Domestic Companies All Worsen

Corporate sentiment deteriorated at the fastest pace in 10 months. This was due to delayed domestic demand recovery and increased global economic uncertainty. Corporate sentiment worsened across manufacturing and non-manufacturing sectors, export and domestic companies, as well as large and small businesses.

[Image source=Yonhap News]

According to the "August Business Survey Results and Economic Sentiment Index (ESI)" released by the Bank of Korea on the 21st, the Composite Business Survey Index (CBSI) for all industries this month was 92.5, down 2.6 points from the previous month. This is the largest decline in 10 months since October 2023 (-3 points). The overall CBSI fell 1.6 points in February this year, then steadily rose from March, but has been declining for two consecutive months since July.

The CBSI is a corporate sentiment indicator calculated using the main indices of the existing Business Survey Index (BSI) (five for manufacturing and four for non-manufacturing). If the index is above the long-term average (January 2003 to December 2023) of 100, it indicates optimism compared to the long-term average; if below 100, it indicates pessimism.

Manufacturing sentiment worsened. The manufacturing CBSI in August was 92.8, down 2.9 points from the previous month. Corporate sentiment deteriorated mainly in the electronics, video, and telecommunications equipment sectors such as semiconductors, automobiles, and electrical equipment. The electronics, video, and telecommunications equipment sector saw worsening sentiment due to rising raw material prices for electronic components and a weakening effect of new smartphone product launches. The automobile sector showed poor electric vehicle sales and worsened due to increased uncertainty related to the U.S. presidential election. Electrical equipment sentiment declined due to weak demand for secondary batteries and reduced cable demand caused by a downturn in the construction industry.

Corporate sentiment worsened for both export and domestic companies. The export companies' CBSI was 96.5, down 2.9 points from the previous month. The domestic companies' CBSI also fell 2.3 points to 91.5.

By company size, sentiment deteriorated for both large and small businesses. The large enterprises' CBSI dropped 2.7 points to 94.1, and the small and medium enterprises' CBSI fell 2.6 points to 90.2.

Non-manufacturing sentiment also worsened. The non-manufacturing CBSI in August was 92.2, down 2.4 points from the previous month. This was due to deteriorating sentiment mainly in transportation and warehousing, wholesale and retail trade, and information and communication sectors. Transportation and warehousing worsened as domestic and international cargo transport volumes decreased. Wholesale and retail trade sentiment declined due to reduced sales centered on offline large supermarkets and petroleum product wholesalers. The information and communication sector worsened due to decreased system software orders and increased sales uncertainty for payment gateway companies.

September Outlook: Large and Export Companies Worsen, Small and Domestic Companies Improve

Next month’s business sentiment showed differentiation between large and export companies and small and domestic companies. The August overall CBSI outlook was 92.7, down 0.7 points from the previous month. The manufacturing CBSI outlook was 93.7, down 0.5 points, and the non-manufacturing CBSI outlook also fell 0.8 points to 92. By size, large companies fell 3.2 points from the previous month, while small companies rose 2.1 points. By type, export companies dropped 2.4 points, while domestic companies improved by 0.2 points.

[Image source=Yonhap News]

The biggest current management difficulties cited by companies were sluggish domestic demand and uncertain economic conditions. For manufacturing, the top management difficulty was sluggish domestic demand (24.3%), followed by uncertain economic conditions (21%), export sluggishness (9.3%), and labor shortages and rising labor costs (9%). For non-manufacturing, the order was sluggish domestic demand (19.6%), uncertain economic conditions (18.3%), and labor shortages and rising labor costs (13.8%).

The Economic Sentiment Index (ESI), which combines the BSI and Consumer Sentiment Index (CSI), was 94.2 in August, down 1.7 points from the previous month. The cyclical component was 93.9, up 0.3 points from the previous month.

This survey was conducted from the 6th to the 13th of this month targeting 3,524 corporate entities nationwide. The number of respondents was 3,292, with 1,845 in manufacturing and 1,447 in non-manufacturing.

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