February Corporate Sentiment Hits Worst Since COVID-19... Deteriorating for Four Consecutive Months

Corporate sentiment deteriorated for the fourth consecutive month, reaching its lowest level since September 2020, when COVID-19 was at its peak. While the manufacturing sector improved due to better export conditions in some industries such as automobiles, the non-manufacturing sector worsened due to a slowdown in the construction market and sluggish domestic demand, continuing its decline for four months. However, corporate sentiment for next month is expected to recover in both manufacturing and non-manufacturing sectors.

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According to the "February 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 85.3, down 0.6 points from the previous month. The index has continued to decline for four consecutive months, recording the lowest level since September 2020 (83.4), following the previous month. However, the decline narrowed compared to the previous month (-1.4 points). The overall CBSI has struggled to recover since turning downward in November last year due to uncertainties surrounding the Trump administration's second term policies in the U.S. and the emergency martial law situation in December. The CBSI is a corporate sentiment indicator calculated using key indices from the Business Survey Index (BSI). A value above 100 indicates that companies are more optimistic about economic conditions than in the past, while a value below 100 indicates pessimism.

The manufacturing CBSI rose 1.1 points from the previous month to 90.1, but the non-manufacturing CBSI fell 1.9 points to 81.7, leading to the overall decline in the CBSI.

This month, manufacturing saw production and business conditions as major factors for the increase. Manufacturing performance improved mainly in automobiles, primary metals, and electronic, video, and communication equipment. The automobile sector benefited from increased passenger car exports and more business days compared to January, which included the Lunar New Year holiday, leading to improved operating rates. Primary metals showed improvement due to increased pre-orders to secure volume before the Trump administration's mutual tariff implementation. Electronic, video, and communication equipment saw positive effects from increased sales following the launch of the Galaxy S25.

In the non-manufacturing sector, business conditions and financial situations were the main factors for the decline. Performance worsened mainly in construction, wholesale and retail trade, and professional, scientific, and technical services. The construction industry experienced deteriorated sales and profitability due to decreased new orders amid a slowdown in the real estate market. Wholesale and retail trade suffered from the disappearance of the Lunar New Year holiday effect and sluggish domestic demand, leading to poor business conditions in consumer goods and pharmaceutical distribution companies. Professional, scientific, and technical services were negatively affected by the slowdown in construction, resulting in poor performance in related design and civil engineering sectors, and advertising also declined due to weak domestic demand.

Following President Donald Trump's signing of a proclamation imposing a 25% tariff without exceptions on steel and aluminum products imported into the United States, and his announcement that tariffs on automobiles and semiconductors are also under consideration, export vehicles are waiting to be loaded at Pyeongtaek Port in Gyeonggi on the 13th.

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Many companies expect improvement in both manufacturing and non-manufacturing sectors next month. The CBSI forecast for March rose 2.6 points from the previous month to 88.0. Manufacturing is expected to increase by 2.0 points to 91.1, and non-manufacturing by 3.2 points to 85.8. Manufacturing outlook improved mainly in metal processing and automobiles, while non-manufacturing outlook is expected to improve in transportation and warehousing, arts, sports and leisure, and information and communication sectors. Lee Hye-young, head of the Economic Sentiment Survey Team at the Economic Statistics Department 1, said, "In the case of arts, sports, and leisure, improvement is expected as the off-season passes," adding, "In transportation and warehousing, expectations for improvement are driven by some companies operating seven-day delivery services and the anticipation that transportation disruptions caused by weather conditions such as snow will ease in March."

However, it is difficult to be optimistic about the trend improvement. Exports are key for manufacturing, and domestic demand is crucial for non-manufacturing, but uncertainties remain regarding the Trump administration's trade policies and domestic political situations. Lee said, "Although news of a 25% tariff on steel and aluminum was announced in the latter part of the survey period, increased pre-order demand acted as a positive factor," adding, "Trade policy variables remain, so we need to monitor future developments carefully."

The Economic Sentiment Index (ESI), which combines the Business Survey Index (BSI) and the Consumer Sentiment Index (CSI), rose 3.5 points from the previous month to 90.2. The seasonally adjusted cyclical component was 88.4, down 0.9 points from the previous month.

Meanwhile, this survey was conducted from the 6th to the 13th of this month targeting 3,524 corporate entities nationwide. There were 3,312 respondents, with 1,867 from manufacturing and 1,445 from non-manufacturing sectors.

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