"Raw Material Supply Disruptions and Inventory Reduction Drive Business Sentiment to 1-Year, 9-Month High"

Corporate business sentiment rebounded in just a month. Analysts attribute this result to a decrease in product inventories caused by disruptions in raw material supply due to the Middle East war, which led to higher raw material prices and production issues in some sectors. As a result, companies increased their reliance on existing inventories to meet demand.

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According to the 'April 2026 Business Survey Results and Economic Sentiment Index (ESI)' released by the Bank of Korea on the 28th, the Composite Business Survey Index (CBSI) for all industries this month rose by 0.8 points from the previous month to 94.9. This is the highest level in one year and nine months since July 2024 (95.9). However, the main reason for this increase was a reduction in product inventories caused by factors such as the Middle East war.

Lee Heunghoo, head of the Economic Sentiment Survey Team at the Economic Statistics Department 1 of the Bank of Korea, explained, "While the improvement in manufacturing conditions was partly due to continued strong exports and rising sales prices, the most significant factor was the depletion of product inventories as existing stock was used to meet demand amid raw material supply disruptions." Given that the inventory decline was driven by the unique factor of supply chain disruptions, Lee noted that when excluding the inventory factor, the business sentiment index actually decreased by 0.1 points for all industries and by 0.4 points for manufacturing.

The CBSI is a business sentiment indicator calculated using key components of the Business Survey Index (BSI) to provide a comprehensive assessment of business perceptions regarding the overall economy. The long-term average (from January 2003 to December 2025) is set at the baseline of 100. A reading above 100 indicates that corporate expectations regarding the economic situation are more optimistic than the long-term average, while a value below 100 is interpreted as pessimistic.

In April, the manufacturing sector rose by 2.0 points from the previous month to 99.1, while the non-manufacturing sector increased by 0.1 points to 92.1. Notably, not only did large corporations in manufacturing reach the baseline value (100), but small and medium-sized enterprises (96.8) also posted their highest index since July 2023 (99.1).

April’s performance in manufacturing was driven by rising product sales prices in sectors such as chemicals and chemical products, primary metals, and fabricated metal products. The chemicals and chemical products sector benefitted from the widening ethylene-naphtha spread due to higher product sales prices and improved export performance. Similarly, the primary metals sector saw better export results due to higher product sales prices and a rising exchange rate. In fabricated metal products, both increased sales prices and expanded seasonal demand from downstream industries such as construction materials and agricultural supplies played a role.

In the non-manufacturing sector, while sectors such as wholesale and retail trade declined, industries like construction and information and communications improved. Wholesale and retail were impacted by rising raw material prices and weakening consumer sentiment, particularly in energy and pharmaceutical wholesalers, resulting in a decline. Conversely, the construction sector improved, led by general contractors handling plant facility projects and an increase in overseas orders. The information and communications sector benefited from new game software releases and a reduction in selling and administrative expenses for previously released games.

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The outlook for the business sentiment index for next month was also surveyed at 93.9, up 0.8 points from the previous month. The manufacturing sector outlook increased by 2.1 points to 98.0, while the non-manufacturing sector remained unchanged at 91.2. The manufacturing outlook was buoyed mainly by chemicals and chemical products as well as primary metals, with automobiles also on an upward trend. For non-manufacturing, sectors such as electricity, gas, and steam showed improvement, while wholesale and retail trade declined.

The Economic Sentiment Index (ESI), a composite of the BSI and the Consumer Survey Index (CSI), fell by 2.3 points from the previous month to 91.7. After seasonal adjustment, the cyclical variation was 94.4, down 0.3 points from the previous month.

This survey was conducted nationwide from April 9 to April 16, covering 3,524 corporate entities. Of these, 1,781 were manufacturing companies and 1,424 were non-manufacturing, with a total of 3,205 firms responding (a response rate of 90.9%).

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