All-Industry Business Sentiment at 99.6... Highest in 4 Years
The corporate perceived economic climate, which had been recovering centered on semiconductors, has spread to the service industry, pushing business sentiment to its highest level in approximately four years. The warmth of the economic recovery is spreading across the entire industry, boosted by transportation and passenger demand during the holiday season alongside improved performance in information technology (IT) services.
According to the Bank of Korea's 'Results of the August Business Survey' on the 26th, the 'All-Industry Business Sentiment Index (BSI),' which represents businesses' outlook on the economy, stood at 99.6, up 1.1 points from the previous month. This marks the highest figure since September 2022 (102.0), the first time in 3 years and 11 months. The All-Industry BSI narrowed the gap with the long-term average of 100 to 0.4 points, indicating that business sentiment is approaching the long-term average. The expansion of recovery is attributed to the manufacturing-centered improvement driven by the semiconductor boom spreading to the service industry this time.
The manufacturing BSI rose 0.6 points from the previous month to 103.6. Product inventories and financial conditions lifted the index by 0.6 points and 0.4 points, respectively. By sector, sentiment improved in electronics, visual, and communication equipment; food; and chemical products. For electronics, visual, and communication equipment, the rise in printed circuit board product prices and the utilization of stockpiled inventory due to reduced operating rates during the holiday season had an impact. For food products, the decline in imported food ingredient prices due to a falling exchange rate and the rise in selling prices for meat processing products had a positive effect.
The rise was even larger in the non-manufacturing sector. The non-manufacturing BSI stood at 96.7, up 1.5 points from the previous month, supported by a 0.6-point increase in sales and a 0.5-point rise in financial conditions. The transportation and warehousing industry benefited from rising sea freight rates, increased cargo transport, and expanded passenger demand during the vacation season. In the information and communications sector, performance improved mainly among video, broadcasting, and IT service companies, while professional, science, and technology services also gained strength from increased orders for construction and design and semiconductor-related engineering firms. A key feature is that the recovery in business sentiment, which had been led by manufacturing until last month, has spread to the non-manufacturing sector this month. Park Yong-min, head of the BOK's Economic Statistics Team, stated, "While semiconductors performed well, the non-manufacturing sector rose even more due to the expansion of summer transportation and leisure activities."
Companies also viewed the economy for next month positively. The all-industry BSI outlook for September stood at 99.6, up 3.1 points from the August outlook (96.5) surveyed in the previous month. The manufacturing outlook rose 2.0 points to 102.5, while the non-manufacturing outlook rose 3.9 points to 97.6. Mr. Park noted, "Improvement in the non-manufacturing sector appears again in September, reflecting the Chuseok holiday effect and improvements in wholesale and retail trade."
By company size, the shift in the center of recovery is distinct. The SME BSI jumped 2.2 points from 97.6 to 99.8, while the large enterprise BSI fell 1.6 points from 105.3 to 103.7. Exporting companies rose 1.0 point from 107.5 to 108.5, while domestic demand companies dipped 0.6 points from 100.0 to 99.4. Mr. Park explained, "Production was sluggish in sectors with many large companies, and it appears that large companies took more vacations than SMEs during the holiday season, causing a temporary impact," adding that "there is a trend of even improvement across all companies."
The August Economic Sentiment Index (ESI), combining corporate and consumer sentiment, rose 1.5 points from the previous month to 99.4, and the ESI cyclical component, indicating long-term trends, also rose 0.4 points to 96.9. However, the proportion of companies citing domestic sluggishness as a management difficulty increased from 16.4% to 19.0% in manufacturing and from 18.4% to 19.4% in non-manufacturing, showing that domestic demand burdens persist despite the perceived economic recovery.
