Clouds Over Manufacturing in Q2... Oil Refining and Chemicals Down Amid Middle East War

There is a forecast that the manufacturing sector in the second quarter of this year will deteriorate compared to the previous quarter. Although sales in the semiconductor and shipbuilding industries are expected to increase, the survey found that sales in the oil refining and chemical sectors are projected to decrease due to the ongoing Middle East war and its consequences.

The Korea Institute for Industrial Economics and Trade announced on the 19th that the Business Survey Index (BSI) for the second quarter of this year was tallied at 90, falling below the baseline. The survey was conducted from March 9 to 20 among 1,500 domestic manufacturing companies. The BSI uses 100 as a baseline, indicating no change from the previous quarter; the closer the score is to 200, the more opinions predict an improvement in conditions. Conversely, the closer it is to 0, the more respondents anticipate a deterioration.

Survey Results of the Industrial Research Institute's Gyeonggi Business Survey Index (BSI). Industrial Research Institute

Along with the overall business outlook, the export index dropped by 3 points (from 95 to 92), and ordinary profit is also expected to decrease (from 91 to 90). However, facility investment is projected to improve (from 96 to 98), while sales (93), domestic demand (92), inventory (98), employment (98), and financial conditions (88) are all forecast to remain flat.

Looking at the sales outlook BSI by industry for the second quarter, semiconductors recorded the highest score at 103, up 6 points from the previous quarter, followed by shipbuilding at 102, up 3 points. Home appliances (from 99 to 84), general machinery (from 92 to 94), steel (from 86 to 88), and wireless communication devices (from 91 to 92) all showed improved outlooks compared to the previous quarter, but still remained below the baseline. Sectors such as displays (from 97 to 86), oil refining (from 87 to 78), chemicals (from 98 to 91), and bio-health (from 98 to 94) also saw their sales forecasts decline.

The BSI for manufacturing sales in the first quarter was 79, a decrease of 7 points from the previous quarter. The sluggish trend was centered in material-related industries such as steel (67, down 11 points) and textiles (65, down 11 points). Most industries, including wireless communication devices (80, down 22 points), home appliances (67, down 20 points), bio-health (73, down 19 points), oil refining (73, down 13 points), general machinery (75, down 12 points), steel (67, down 11 points), and textiles (65, down 11 points), also recorded declines.

In a current issues survey, manufacturing companies identified "external environmental uncertainty" (53%; multiple responses allowed) as the factor most significantly impacting current business activities. This figure is 29 percentage points higher than in the previous quarter's survey.

As for difficulties caused by the prolonged geopolitical uncertainty in the Middle East, respondents cited "increased raw material costs" (73.2%), "rising freight rates" (31.6%), and "decrease in orders" (33.1%) as major challenges.

This year, the main priorities for business operations are "expanding market share of core products" (54.2%), strengthening external risk management (37.1%), and "putting effort into new product development" (29.9%), in that order.

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