Manufacturing Outlook Shows Signs of Recovery for First Time in Five Quarters
The Business Survey Index (BSI) for the manufacturing sector rose 6 points to 86 in the fourth quarter, up from 80 the previous quarter, according to a survey of 2,413 manufacturers nationwide released by the Korea Chamber of Commerce and Industry (KCCI) on the 27th. The BSI measures whether companies expect business conditions to improve or worsen, with readings above 100 indicating more optimistic than pessimistic firms. While the latest figure still falls short of the benchmark of 100, the indexes for both exporters (91) and domestic-focused firms (85) climbed together for the first time in five quarters, marking a second consecutive quarter of recovery.
The BSI for exporters rose 5 points from the previous quarter to 91, while that for domestic-focused firms gained 7 points to 85. The KCCI attributed the exporters' improvement to strong exports of key products such as semiconductors and cosmetics, and the domestic firms' gain to reduced pressure from imported raw material prices thanks to currency stabilization.
More industries are also forecasting improvement for the coming quarter. Last quarter, only semiconductors (113) exceeded the benchmark of 100, but this quarter the number grew to five: semiconductors, cosmetics, medical and precision equipment, shipbuilding, and pharmaceuticals and biotech. Semiconductors hit a record 139 since the survey began, staying above the benchmark for a fourth straight quarter. Cosmetics (120) and medical and precision equipment (108) jumped 20 points and 28 points, respectively, from the previous quarter, while shipbuilding (103) and pharmaceuticals and biotech (102) also rose. The BSI for non-metallic minerals climbed 27 points to 88. In contrast, electronics and telecommunications fell 13 points to 80 on rising raw material prices and logistics costs.
Despite the improved sentiment, companies still feel significant business burdens. Some 60.4% of firms expect their operating profit this year to fall short of their initial targets, while only 31.7% expect to meet their targets and just 7.9% expect to exceed them. The most commonly cited obstacle to meeting targets was rising production costs such as raw materials and energy, named by 43.2% of respondents. This was followed by deteriorating sales and order conditions (24.9%), rising labor costs and hiring difficulties (11.7%), currency volatility (6.8%), worsening trade environment (4.1%), and regulations and institutional factors such as permits (1.3%).
"While the index rose for a second consecutive quarter thanks to strong performance in some key industries and improved sentiment among both exporters and domestic-focused firms, six out of 10 companies still expect to miss their operating profit targets," said Kang Min-jae, head of the KCCI's Economic Policy Team. "Policy support is needed to improve business conditions, such as stabilizing raw material supply and easing energy cost burdens."
