Manufacturing Sector Slumps Again...KIET: "Q1 Business Conditions and Sales Both Decline"

Manufacturing BSI: Business Conditions and Sales Fall to 79

Second Quarter Forecast Stays Below 100, Sluggishness Continues

External Uncertainty at 53% Amid Middle East Conflict

The domestic manufacturing sector experienced a renewed slowdown in the first quarter of this year. Both the business conditions index and the sales index turned downward, resulting in weakened business sentiment among companies. It is expected that a clear recovery will remain limited in the second quarter as well.

According to the "Manufacturing Business Survey Index (BSI) for Q1 2026" released by the Korea Institute for Industrial Economics & Trade on April 19, the manufacturing business conditions BSI for the first quarter of this year stood at 79, turning downward from 84 in the previous quarter. The sales BSI also dropped significantly to 79 from 86 in the previous quarter. When the index is below the baseline of 100, it indicates a deterioration in business conditions.

In detail, both domestic demand (79) and exports (83) fell compared to the previous quarter, confirming a broad-based decline in demand. Ordinary profit (81) and financial conditions (81) also worsened, while facility investment (98) and employment (97) remained relatively stable.

The outlook for the second quarter is also unfavorable. The outlook BSI for business conditions fell slightly to 90, and the sales outlook BSI remained at 93, unchanged from the previous quarter. As both indices remain below the baseline of 100, expectations for a recovery remain limited.

By type, the decline was particularly pronounced among material-focused and small and medium-sized enterprises. In the first quarter, the sales BSI fell below 100 across all types, with the material sector (73) and SMEs (73) experiencing the sharpest declines. However, in the second quarter, the ICT sector is projected to recover to 100, reaching the baseline for the first time in three quarters.

By industry, most sectors experienced sluggishness. In the first quarter, multiple sectors, including wireless communication devices, home appliances, general machinery, refining, steel, and textiles, saw declines. The drop was relatively limited for semiconductors and secondary batteries. In the outlook for the second quarter, only semiconductors (103) and shipbuilding (102) are expected to surpass the baseline, while sectors such as refining, chemicals, and displays are projected to remain sluggish.

Companies' perception of the business environment has deteriorated further. "Uncertainty in external conditions" was cited as the most significant factor affecting current business activities by 53% of respondents, more than doubling from 24% in the previous quarter. This is seen as reflecting the prolonged impact of the ongoing war in the Middle East.

As for future business risks, "increased burden of raw material costs" was identified as the greatest concern, cited by 73.2% of responding companies. Rising shipping costs (31.6%) and decreased orders (33.1%) were also noted as major risk factors.

Meanwhile, companies identified "expanding market share of core products" as their top management strategy for this year, followed by strengthening external risk management and developing new products as key response measures.

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