The business sentiment of corporations has fallen to its lowest level since the COVID-19 pandemic. This is due to a combination of political instability following the declaration of martial law, a rise in the won-dollar exchange rate, and concerns over deteriorating trade conditions.
According to the 'Corporate Business Survey' results released by the Bank of Korea on the 27th, the Composite Business Survey Index (CBSI) in all industries for this month was recorded at 87.0, a drop of 4.5 points from the previous month. This is the lowest level since September 2020 (83.0) during the COVID-19 pandemic.
Hwang Hee-jin, chief of the statistics survey team at the Bank of Korea, noted that it seems the responses from corporations in the chemical and automobile sectors facing difficulties with rising raw material prices due to a sharp increase in the exchange rate driven by increased political uncertainty were reflected. Strengthening of trade protectionism following the inauguration of the new U.S. government, a decrease in demand due to a slowdown in China's economy, or intensified competition also had an impact.
CBSI refers to a psychological indicator calculated based on the main indices (five for manufacturing and four for non-manufacturing) among the Business Survey Index (BSI). If it exceeds the long-term average (100) from January 2003 to December 2023, it indicates that corporate sentiment about the overall economy is optimistic; if it falls below, it is pessimistic.
By industry, the manufacturing CBSI recorded 86.9, down 3.7 points from the previous month. The main declining factors include the business outlook (-1.3 points) and financial conditions (-1.3 points). In the non-manufacturing sector, such as services (87.1), profitability (-1.5 points) and financial conditions (-1.5 points) deterioration, and the business outlook (-1.4 points) contributed to a 5-point decline. The decline in manufacturing and non-manufacturing is the largest since September 2022 (-5.6 points) and October 2023 (-7.4 points), respectively.
The CBSI forecast for January next year is aggregated at 82.4 for all industries, 85.2 for manufacturing, and 80.3 for non-manufacturing. This represents a decline of 7.3 points, 3.7 points, and 10.0 points, respectively, from this month's forecast. The decline in the non-manufacturing forecast (-10.0 points) also marks the largest since April 2020 (-23.5 points) at the onset of the COVID-19 crisis, reaching the highest in 4 years and 8 months.
The Economic Sentiment Index (ESI), which incorporates the Consumer Sentiment Index (CSI) into the BSI, recorded 83.1, down 9.6 points from the previous month. This is the lowest level since September 2020 (77.4). The decline is the largest since a 21.2-point fall in March 2020. The cyclical variation of the seasonally adjusted ESI was 89.7, down 1.1 points from the previous month.